Credit Card Pre-Authorization Explained

In this article, we’ll review everything you need to know about it. Read on to learn more.

What is pre-authorisation?

A pre-authorisation - also referred to as "authorisation hold" or "pre-auth" - is a temporary hold that is put on a credit card belonging to a credit card customer. Usually, the time needed for the pre-authorisation process is about five days.

The pre-authorisation period ends when the post-authorisation - or "settlement" - comes through.

What ultimately determines the amount of time that the pre-authorisation process takes is your MCC, or Merchant Classification Code.

If you’re a merchant, be careful when it comes to extending a temporary hold for a period that’s too long. Customers, sometimes, will move their funds around. When this occurs, it could cause a transaction denial.

How does it work?

When a pre-authorisation occurs, the merchant takes a payment that’s deferred instead of one that’s a full immediate payment, in a specific situation. This specific situation is when a customer purchases a service or product.

Once the pre-authorisation period ends, the merchant will have the opportunity to convert the deferred transaction manually into a payment.

During this period, it will be possible for the merchant to check whether the payment is genuine. However, unless the full authorisation is carried during this time, the customer will get their funds back when they’re released.

Why is it required?

Using pre-authorisation is a way for merchants to make the payments they take from their customers more secure. Basically, they protect themselves from fraud.

What is it used for?

Pre-authorisation can be useful for any type of business that sells products over the phone or online. However, when it comes to situations when merchants use pre-authorisation most often, there are two that are the most common.

One of these situations is one in which there is a no-show risk. Another situation is when there are extra charges that might be incurred.

For example, a hotel or another accommodation provider is likely to pre-authorise a credit or debit card. When this occurs the hotel will pre-authorise an amount on the card.

This amount will be an estimated amount the customer might spend at the hotel. This amount is based on elements like refreshments or the room.

A car rental company is also likely to use pre-authorisation. The payments they often pre-authorise are those that they estimate a customer will submit to them after they have finished the period of renting the car.

This estimate might include the costs of insurance, petrol, or mileage. Additionally, the pre-authorisation provides a bit of financial cover if the customer returns the vehicle in poor condition.

Several other merchant types are likely to use pre-authorisation. These include activity providers, like boat or bike rental operators. They also include restaurants and bars.

What are the benefits of it?

There are many benefits merchants get when they use credit card pre-authorisation. These include a reduction in fraud (and consequential chargebacks), reduced transaction costs, and the elimination of most refund fees.

They also include the reduction of merchant-caused refunds and the fact that they offer a payment guarantee of sorts.

How does it work at bunq?

When a customer has completed the payment, the merchant should notify bunq within a specific period. If the transaction has occurred in Europe, merchants have to do this within 20 minutes. If it has occurred in the US or Canada, within an hour.

Rarely, the authorisation is delayed by two hours. When this occurs, bunq doesn’t receive the finalization message. This happens, especially, in countries that are credit card-based.

When this occurs, bunq will only adjust the transaction after they’ve received the request. This can take a maximum of a few days.

If there’s another reason that the transaction wasn’t complete, they’ll reverse the reservation automatically. This will occur in 7 or 30 days, depending on the merchant.

What is my credit card limit at bunq?

When you have a bunq card, you do not actually have a credit card limit in that you don’t have a line of credit. Even though you can use your card like a credit card, it works more like a debit card, as the amount you can spend is what you have into your account.

Therefore, the "credit card" limit you have at bunq is the amount you have in your bunq account. No worries, you can never go into depth!

Want more information?

Now that you’ve learned about credit card pre-authorisation, you might want more information. Maybe you want to learn about refund processes, fees, payment guarantee, payment gateway, transaction costs, deposit processes, waiting for your deposit, or post-authorisation processes.

Whatever information you need, we can help. At bunq, we’re experts when it comes to credit cards and credit card processes. Check out our knowledge base here.

We also offer easy mobile banking. To learn more about our mobile banking solution, check out our plans now.