Authorisation of Credit Card Payments

FAQs on Authorisation of Credit Card Payments

Processing credit card payments is a complex procedure involving multiple parties communicating via intricate technical infrastructures in a matter of seconds.

This page provides information on credit card payment processing, also known as authorisation, the different systems used to process credit card payments and possible reasons for payment rejections.

What is credit card authorisation?
Credit card authorisation is the process by which a merchant obtains approval to use a credit card for a specific transaction.
When a customer pays by credit card, they enter their card details either physically (by inserting or tapping the card on a payment terminal) or online (by entering the card details in an online shop).
The payment terminal or website sends the credit card details and transaction information, including the amount due, to the payment service provider, which then forwards the authorisation request to the credit card company (e.g. Visa or Mastercard). The credit card company then passes this request to the cardholder's bank. The bank verifies whether the card is valid and whether the cardholder has sufficient credit to complete the transaction. If the card is valid and the transaction amount is within the credit limit, the payment is approved – meaning the credit card transaction is authorised.
How does authorisation work in the four-party system?
The merchant submits a payment authorisation request to the payment service provider.
The payment service provider forwards the transaction details to the card organisation, such as Visa or Mastercard, which determines whether to approve or decline the transaction.
If the transaction is approved, the card organisation sends the authorisation request to the issuing bank. The issuing bank then decides whether to accept or decline the request.
The cardholder’s bank checks the cardholder’s account and informs the card organisation of its decision (approval or rejection of the transaction).
The card organisation relays this decision to the merchant via the payment service provider.
Diagram: Authorisation (4-party system)
How does authorisation work in the three-party system (American Express only)?
The merchant has a direct contractual relationship with American Express (Acquirer). The payment authorisation request is sent directly to American Express via the merchant’s PAYONE terminal.
As both the acquirer and the issuer, American Express reviews the authorisation request, approves it if applicable and informs the merchant of the decision.
Diagram: Authorization (3-party system)
What data is exchanged between the parties involved in an authorisation?
The following data is exchanged between the parties during an authorisation:
Transaction date and time
Transaction amount and currency
Transaction identification number
Merchant details
Type of credit card
Type of transaction
Transaction status (pending, approved or declined)
Can a pending transaction be declined?
A pending transaction may be declined for various reasons, including:
Insufficient account balance (debit card)
Poor credit rating due to outstanding payments (credit card)
No connection between the terminal and the issuing bank or card organisation
Credit card details cannot be read
Exceeding the credit card limit
Card is invalid (expired)
Transaction cannot be processed because the merchant has not signed an additional agreement for the required function
Incorrect entry of card number or security code
Card has been blocked due to suspected fraud
What can I do if a transaction is declined?
If the issue is a temporary connection failure, retrying the transaction may resolve it. Alternatively, ask the customer for another credit or payment card.
What does the issuing bank do after approving a transaction?
Once the transaction is approved, the issuing bank reserves the transaction amount on the cardholder’s account. The merchant terminal then begins processing the authorised payments.

Authorisation of credit card payments

FAQs on Authorisation of Credit Card Payments