A typical in-person credit card transaction only takes a few seconds from the moment a customer swipes, dips, or waves his or her plastic at a point-of-sale (POS) terminal. The credit card process happens so quickly and so often that most people rarely think about what is happening behind the scenes.
That customer at your checkout counter could be using a fake or stolen card. Or, perhaps he or she is using a real credit card that lacks sufficient funds to cover the purchase. Either way, how is your payment processor able to verify if the transaction is approved so quickly?
The answer lies in the credit card approval code, also known as an authorization code.
A credit card authorization or approval code is an alphanumeric string generated at the POS. Normally consisting of five to six characters, this one-time approval code is unique to each transaction. It is sent from the customer’s card-issuing bank directly to your POS display, verifying that:
There was a time when merchants had to physically call Visa or Mastercard to verify that the card-carrying customer standing in front of them had both the funds and approval to complete a purchase. Not surprisingly, this verification process was time-consuming – especially when servicing multiple customers back to back. Connecting with card-issuing banks by phone often proved difficult during non-business hours.
However, calling each bank was a necessary step to help prevent credit card fraud and abuse. As a merchant, you might not receive cleared funds for several days, by which time the customer in question would be long gone.
Thanks to the internet, it’s now possible to skip this manual verification process with automation. Instead of speaking directly with someone on the phone, credit card authorization codes are generated and sent instantly through the card processing network.
Authorization codes aren’t the only way to verify a credit card transaction. For in-store sales, for example, customers can provide:
For eCommerce merchants, some credit card processing tips suggest that you require online shoppers to provide a Card Verification Value (CVV) code, which is a three- or four-digit number on the back of most consumer plastic cards, or a Card Identification Number (CID), which is the four-digit code on the front of an American Express card. You can also require a billing address and match it against an Address Verification Service (AVS).
Like credit card authorization codes, CVV and AVS are also verified instantaneously; however, credit card approval codes happen with each transaction regardless and don’t add friction to the checkout process, unlike with CVV and AVS.
If you have questions about accepting payments, improving security, and minimizing fraud risk, we’re here to help. To learn more about our complete range of PCI-compliant credit card processing solutions, schedule a free consultation with our merchant services team today.