What does pre authorization mean on a debit card?
Pre authorization on a debit card refers to a process where a merchant requests permission from the card issuer to charge a certain amount of money from the cardholder’s account. This process is commonly used when making purchases, booking services, or renting items. Understanding how pre authorization works on a debit card is crucial for both cardholders and merchants to ensure a smooth and secure transaction process.
In this article, we will delve into the concept of pre authorization, its significance, and how it affects both cardholders and merchants. We will also discuss the different types of pre authorizations and their implications on your account balance.
How does pre authorization work on a debit card?
When you make a purchase or request a service using your debit card, the merchant’s payment processor sends a request to the card issuer for pre authorization. This request includes the amount of money that the merchant intends to charge. The card issuer then verifies the availability of funds in your account and, if sufficient funds are present, authorizes the transaction.
Once the pre authorization is granted, the card issuer temporarily holds the amount of money specified in the request. This temporary hold is not an immediate deduction from your account balance; rather, it is a reservation of funds to ensure that the transaction can be completed. The actual deduction from your account balance will occur once the merchant finalizes the transaction.
Significance of pre authorization on a debit card
Pre authorization serves several important purposes in the debit card transaction process:
1. Ensures availability of funds: By verifying the availability of funds before the transaction is completed, pre authorization helps prevent over-limit situations and declined transactions due to insufficient funds.
2. Protects merchants: Pre authorization provides merchants with a level of assurance that the transaction will be successfully completed, as the card issuer has already verified the cardholder’s account balance.
3. Fraud prevention: Since pre authorization requires the card issuer to verify the cardholder’s account information, it can help prevent fraudulent transactions by ensuring that the card is in the possession of the legitimate cardholder.
4. Streamlines the transaction process: Pre authorization allows merchants to process transactions more efficiently, as they can proceed with the sale or service without waiting for the actual funds to be deducted from the cardholder’s account.
Types of pre authorizations and their implications
There are two primary types of pre authorizations: single-use and multi-use.
1. Single-use pre authorization: This type of pre authorization is used for one-time transactions, such as making a purchase at a retail store or renting a car. Once the transaction is completed, the pre authorization is voided, and the funds are released from the hold.
2. Multi-use pre authorization: This type of pre authorization is used for transactions that span multiple days, such as booking a hotel room or renting a car for an extended period. The pre authorization remains in effect until the transaction is completed, and the funds are released from the hold accordingly.
Understanding the type of pre authorization that applies to your transaction is essential, as it can impact your account balance and the timing of when funds are deducted from your account.
Conclusion
Pre authorization on a debit card is a crucial process that ensures the availability of funds, protects both cardholders and merchants, and streamlines the transaction process. By understanding how pre authorization works and its different types, you can better manage your finances and make informed decisions when using your debit card.
