Authorized Transaction

Understanding Authorized Transactions: A Comprehensive Guide

Authorized transactions are a fundamental aspect of the electronic payment process, enabling seamless debit or credit card purchases. In this comprehensive guide, we'll explore what authorized transactions entail, how they work, and the factors that influence their approval or decline.

What Is an Authorized Transaction?

An authorized transaction refers to a debit or credit card purchase that has received approval from the bank that issued the customer’s payment card. It's a crucial step in the electronic payment process, involving collaboration between the cardholder, merchants, financial institutions, and payment processors.

Key Takeaways

• An authorized transaction is a debit or credit card purchase that is approved by the customer's bank.
• This process involves numerous entities working together to complete an electronic transaction.
• A card could be declined for many reasons, including the expiration of the card, not enough funds or credit available, or because the card is counterfeit.

How an Authorized Transaction Works

Electronic payments involve a complex network of entities, including financial institutions, merchants, and payment processors. The process begins with the cardholder initiating a payment using their payment card. Upon presenting the card to a merchant, the cardholder authorizes the transaction.

Additional information, such as personal identification numbers, expiration dates, zip codes, or card security codes, may be required for processing. Once the card information is provided, it is transmitted to the merchant's bank, which serves as the lead facilitator of the transaction.

Processing an Authorized Transaction

Merchant banks often collaborate with payment processor networks to accept various branded cards. The payment processor communicates with the cardholder’s financial institution, known as the issuing bank, to verify the availability of funds and prevent fraudulent charges.

Approval from the issuing bank is a crucial step in authorizing the transaction. Once approved, the communication is sent to the merchant bank, confirming the charge and initiating the deposit of funds into the merchant's account.

Declined Transactions

In cases where a transaction cannot be authorized, it is declined. There are various reasons for a declined transaction, including insufficient funds, lost or stolen cards, expired cards, technical glitches, or errors in entering credit card details.