February 11, 2023


Credit card authorization is the process of verifying that a customer has sufficient funds to complete a transaction. The customer’s bank (the issuing bank) is responsible for authorizing the transaction.

The authorization process takes place before a credit card transaction is completed, and does not involve the actual transfer of funds. A request is submitted by the merchant via their payment processor, and this request is forwarded until it is received by the issuer.

The issuer verifies that the card is valid and that the customer has sufficient funds to cover the cost of the transaction. If so, an authorization hold is applied to the customer’s account. This reduces the customer’s available credit by the transaction amount, putting the amount on hold until the transaction is completed. The funds themselves are not transferred - this is handled by a separate capture process.

The merchant submits an authorization request via their payment processor. This request is passed on to the acquirer who forwards the request to the card issuer. The card issuer verifies that sufficient funds are available to cover the cost of the transaction and returns the result to the payment processor. The payment processor in turn returns the result to the merchant. The authorization is either approved with an authorization code, or declined with an error code indicating the reason.

If the transaction is authorized, the funds needed to cover the transaction are put on hold until the transaction is completed. If authorization fails, an error code is returned instead and the transaction cannot be completed.

Authorization may fail because the payment information is incorrect (e.g. the credit card number is wrong or the CVV does not match the card number), because the buyer has insufficient credit to cover the cost of the transaction, or for technical reasons. If the issue is caused by incorrect data, the buyer can correct the data and the authorization request can be resubmitted.

This process only takes a few seconds.

Improving your authorization rates means more revenue and a higher conversion rate. There are a few strategies for increasing the authorization rate:

  • Submit as much information as possible with your requests: including the full billing address with postal code and the card’s CVV can help increase the likelihood of a charge being authorized.
  • Use a smart routing strategy to funnel payments through local payment service providers and/or those with the highest authorization rates. Local transactions are more likely to be approved by the issuing bank and using a local provider eliminates the risk of a charge being declined because international payments are blocked for the card in question. 
  • Use A/B tests to determine the likelihood of different providers approving a transaction and optimize your smart routing strategy.
  • Retry payment using an alternative service provider if the initial request fails and there is a chance of the payment being authorized. As different providers use different strategies to evaluate the risk of a transaction, one provider may decline a charge whereas another may accept it.
  • Use risk management solutions to reduce fraud and keep chargebacks low. The higher a merchant’s chargeback rate (i.e. charges disputed by consumers), the more likely it is that transactions will be declined.
  • Use an account updater to ensure that credit card information used in card on file transactions is accurate. If the card has expired or has been reissued, the charge will not be authorized.
  • Offer payment methods that use 2FA. Authorization rates for digital wallets like Apple Pay and Google Pay are typically higher for this reason.
  • Use SCA exemptions for low value transactions and only request authentication when necessary.