𝐖𝐡𝐚𝐭 𝐢𝐬 𝐚 𝐆𝐡𝐨𝐬𝐭 𝐀𝐮𝐭𝐡𝐨𝐫𝐢𝐬𝐚𝐭𝐢𝐨𝐧👻?

When a purchase is made with a credit card, it is usually a quick process on the front end, whilst behind the scenes it is not short of overwhelming due to the complex flow of messages across the various part of the ecosystems.

There are multiple scenarios why a merchant may opt to do an authorisation/pre-authorisation first e.g. subscriptions, recurring, room reservation etc.

𝐋𝐞𝐭’𝐬 𝐝𝐢𝐯𝐞 𝐢𝐧 𝐟𝐮𝐫𝐭𝐡𝐞𝐫…

❎ A card pre-authorisation puts a temporary hold on the cardholder funds for a window of days, typically 5 days, and acts as a payment guarantee for merchants to reserve the funds until they capture the transaction.

❎ At a technical level, the actual duration of the hold depends on the merchant classification code (MCC code).

❎ A 𝐠𝐡𝐨𝐬𝐭 𝐚𝐮𝐭𝐡𝐨𝐫𝐢𝐬𝐚𝐭𝐢𝐨𝐧 is when a small amount is authorised against a customer’s card, typically £1/1$/1€, to check that with the card issuer that the customer has sufficient funds available. However, the approved authorisation never subsequently clears, settles or get reversed appropriately.

❎ When such auth is not immediately cancelled after verification, the charge may still show up on the customer account for an number of days. The customer will see a transaction for £1.00 followed by a transaction for the actual amount of their purchase e.g. £50.

𝐓𝐡𝐞 𝐜𝐨𝐧𝐬𝐞𝐪𝐮𝐞𝐧𝐜𝐞𝐬 𝐭𝐨 𝐭𝐡𝐢𝐬 𝐛𝐞𝐢𝐧𝐠 𝐭𝐡𝐚𝐭…

❎ The Schemes Visa and Mastercard view this as an adverse impact to the cardholder’s credit/cash availability, which can lead to increased declines and confusion.

❎ Under the Scheme Assessment fees, Visa calls the fee for this the 𝙈𝙞𝙨𝙪𝙨𝙚 𝙤𝙛 𝘼𝙪𝙩𝙝𝙤𝙧𝙞𝙨𝙖𝙩𝙞𝙤𝙣 𝙁𝙚𝙚 while Mastercard calls it a 𝙋𝙧𝙤𝙘𝙚𝙨𝙨𝙞𝙣𝙜 𝙄𝙣𝙩𝙚𝙜𝙧𝙞𝙩𝙮 𝙁𝙚𝙚. These make up some of the higher charge for assessment fees and can apply in conjunction with other assessments, even on the same transaction❗

❎ There are of course alternatives which payment networks have advanced in recent years to reduce such practice, one of which being the use of 𝙕𝙚𝙧𝙤 𝙑𝙖𝙡𝙪𝙚 𝘼𝙪𝙩𝙝𝙤𝙧𝙞𝙨𝙖𝙩𝙞𝙤𝙣 or the use of Address verification Service (AVS) option, which does not appear on a customer’s statement and still gives merchants the ability to test the validity of a card before they authorise the associated larger transaction.

Clearing or reversing authorisations within Schemes guidelines are of outmost importance. This is an area I often pick on with merchant statements and draw their attention to🤩.

👉🏽Over to you – Where is the £1 auth a fairly common practice in?

🚀𝘼𝙪𝙩𝙝 𝙚𝙭𝙥𝙚𝙧𝙩𝙨, 𝙨𝙝𝙖𝙧𝙚 𝙮𝙤𝙪𝙧 𝙞𝙣𝙨𝙞𝙜𝙝𝙩𝙨🎤

𝙇𝙞𝙠𝙚 𝙩𝙝𝙞𝙨 𝙘𝙤𝙣𝙩𝙚𝙣𝙩?
🅵🅾🅻🅻🅾🆆 Paypr.work [ˈpeɪpəwəːk] Sandra Mianda🖇

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