Authorization Request and Authorization Code

Before finalizing a transaction, the merchant should submit an authorization request to the customer’s issuer. The issuer will respond with an authorization code.

An authorization code helps the merchant understand how to proceed — if the transaction should be completed or not. Codes usually fall into three categories:

• Approved: The card has not been reported lost or stolen, the account is in good standing, and the account has sufficient funds to cover the transaction.
• Declined: The card has been reported lost or stolen, the account isn’t in good standing, or there aren’t sufficient funds available to cover the transaction.
• Technical Issues: An issue is interfering with the authorization process such as the account number is invalid, the cardholder entered an incorrect PIN number, or the equipment is malfunctioning.

Only transactions with an approved authorization code should be completed. The transaction should be terminated if any of the other codes are returned.

View a full list of authorization response codes here.

NOTE: Merchants don’t need to be physically involved in the authorization process — especially for card-not-present sales. The gateway or point-of-sales (POS) terminal can automatically submit the request and receive the response. These technology platforms can also be programed to automatically accept or decline a transaction based on the response.

Generally, a merchant’s only involvement would be to force acceptance of a transaction after it’s been declined which is usually only applicable to in-person or card-present transactions. Manually overriding a declined authorization attempt is strongly discouraged since transactions that are processed without authorization are susceptible to chargebacks.

What Does the Authorization Process Entail?

Authorization is a conversation that happens between the issuer and merchant to determine whether the transaction should be approved or declined.

It is important to note that an “approved” authorization response simply indicates the account is in good standing, has enough funds or credit available to cover the transaction, and that the card hasn’t been reported lost or stolen. A transaction may be approved by the issuer but still be reported as unauthorized by the cardholder if permission wasn’t granted to make the purchase.

Funds don’t move from the cardholder’s account to the merchant’s until the transaction is settled with the acquirer. However, the authorization process can freeze the cardholder’s credit or fund while available so the transaction can be finalized at a later time.

Also referred to as:

• Issuer’s Response Code
• Authorization Response Code

RELATED READING
Authorization & Settlement: The Impact on Chargebacks
A complete strategy for trust and safety

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