What you need to know about Incremental Authorisations🤓?
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Card authorisations are critical processes that take place in every card transactions. Beyond simply checking if a cardholder has the funds available to to cover the cost of a transaction, an authorisation process is a security measure that gives card issuers and merchant a routine way to screen for potential fraud before it turns into a successful transaction. In credit card transaction processing, there are different kinds of authorisations, the core ones being:
➡️Original authorisation
➡️Pre-authorisation
➡️Incremental authorisation
➡️Post authorisation
The authorisation is granted by the card issuer, i.e. the bank that provides the card to the customer (i.e. the customer's bank). Usually, the process happens through a gateway that connect with an acquirer before submitting the request through a processor that connect with the Cards Networks and the issuer/issuer processor.
Typically after an auth request the issuing bank will return one of two decisions to the acquiring bank:
Approved with an authorisation code: If the card is valid and there are sufficient funds available, then the issuer responds to the acquirer’s request with approval for the transaction to proceed. This approval will be accompanied by an authorisation code. The issuer will place an authorization hold on the cardholder’s account. This will reduce their available funds or credit by the amount of the sale in order to prevent them from potentially overdrawing the account before the funds from the current transaction are moved and sent to the business’s bank. Authorization holds are a helpful mechanism for preventing card fraud and chargebacks.
Declined with an error code: If the issuer determines that the transaction cannot be authorised, they will let the acquirer know and send an error code.
When a merchant decides to increase a previously amount, it is called an incremental authorisation.
How does that work and what is the purpose for this ( I hear you saying😜)👇🏽
A merchant would revert to an incremental auth when the final amount will exceed or is likely to exceed the amount of the initial auth or pre-auth. The Card Network allow a percentage variation, but if the final amount goes beyond that the incremental auth needs to be obtained. In practical terms, the incremental auth will be for the difference between the original pre-auth and the actual or estimated final amount. The sum of all linked estimated and incremental auth represent the total amount on hold in the cardholder’s account for a given transaction.
Incremental auth are restricted:
Each card brand has category restrictions.
There a restricted number of attempts per payment
From a message flow perspective, a regular incremental authorisation sequence consists of three parts:
The original pre-authorisation itself
An incremental transaction with an amount update to add to the original pre-authorization amount
At a later time a capture transaction referring to the incremental transaction
Depending on the issuing bank, cardholders may see the amount of the original pending authorisation increase in place, or they may see each increment as an additional pending authorisation. After capture, the total captured amount normally appears as one entry.
While there is no standard approach, there are common practices that have evolved for this process.
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