Authorizations is the term given to the process of validating funds available on a credit or debit card. It is done at the time the transaction is entered or swiped through a terminal. When you process a credit card transaction, a response comes back from the issuing bank, all in a second or two. An authorization is either approved or declined by the issuing bank.
Authorization holds are a practice within the banking industry of verifying electronic transactions initiated with a debit card or credit card and holding this balance as unavailable until either the merchant clears the transaction or the hold "falls off." Authorization holds can fall off the account if it is never settled by the merchant, which in turn makes the balance available again to the card holder. An authorization can fall off from one to eight business days after the transaction date depending on the bank's policy.
Frequently asked questions/scenarios:
I voided the transaction but my customer is calling and saying they are still seeing the charge pending on their account.
This is because once the bank produces an approved authorization code (verifying at the time of the transaction that the funds are available) it is labeled as ‘pending’ until the approval code falls off. The hold will fall off between 3-5 business depending on the banks policies. There are cases where it can take up to two weeks to fall off, so just be aware that this is a possibility.
What if my customer needs the hold to fall off and can’t wait up to two weeks?
We would advise the customer to contact their issuing bank to remove the hold. If the bank responds with they are waiting on the merchant, then you can contact the card holders issuing bank with the approval code to request the hold be removed.
Need help in finding the approval code go here.
The rule of thumb here is if you have already settled the batch the day the transaction took place and did not receive the funds, then the hold or pending amount is being held by the bank.