To keep up with the advent of a new, highly-technological era, traditional payments are evolving at the speed of light into innovative digital solutions. With the rapid change in the way we do payments, it is no surprise that still a lot of merchants are not taking full advantage of the benefits that digital solutions offer for optimizing payment processes and improving customer experience. Today, we will talk about pre-authorizations with MYMOID, which is the newest addition to our portfolio.
Credit card pre-authorizations can be really beneficial for your business, especially if you are selling high-risk products or items that take time shipping. However, since it’s a relatively new concept in the field of digital payments, not every merchant is familiar with the advantage he can gain from implementing it.
But before we move on to the common uses and the benefits of pre-authorized payments for merchants, let’s get familiarized with the concept.
What are credit card pre-authorizations?
The pre-authorization is a charge on your credit or debit card similar to other bank charges, with the difference that instead of taking money from the card immediately, the funds are put on “hold” for several days. The duration of this hold usually depends on a four-digit number called the Merchant Classification Code or MCC, which is used to classify the businesses by the type of goods or services they provide.
It means that some merchants will be qualified for a longer hold than others, but the general rule is to charge the card within 7 days, otherwise the hold expires and you have to call the customer and go over the whole payment process again.
Once a certain amount of money has been put “on hold” from the customer’s bank account, it means that it is blocked, and cannot be spent on something else. However, if the merchant does not obtain the funds within a reasonable period of time, the money will be released back to the credit card holder.
What are the most common uses?
Trading and e-Commerce – authorization holds are a common practice in trading and e-Commerce, especially when the merchant is managing inventory or if product shipping takes time. To avoid customer dissatisfaction from product delivery issues, such as delays, wrong items or damaged goods, the credit card will be charged only when the products have been successfully delivered.
Car rental companies – this payment process is a common practice in car rental companies, where an authorization hold is secured on the credit or debit card to cover not only the estimated rental charges, but any possible additional charges as well. It ensures that the customer will have available funds to cover any damage in case the car is not returned in a good shape. Once the rental duration is over and the vehicle is returned to the company, the funds that were put on hold are released.
Hotels – pre-authorizations are extremely frequent in hotel scenarios to guarantee available funds in case any additional charges incurred during the hotel stay, such as room service or other amenities. Authorization holds can happen at any time of the booking stage or during the check-in process. As with car rental companies, this amount is different depending on the hotel and the country. In case that there were no additional charges during the hotel stay, the funds are released back to the card holder.
Gas stations – a lot of gas stations put an authorization hold on your credit card because they cannot estimate in advance the amount of gas that you are planning to pump in your vehicle. If the company put on hold $60 but the actual transaction was for $30, the additional funds will be released. This method is starting to gain popularity in the new self-service gas stations which don’t need human personnel to give service to their clients.
Restaurants – some restaurants use pre-authorization holds to ensure that the customer will have enough funds in his credit card. This amount is usually the total amount of the purchase plus 20%, otherwise the card can be declined. This method is popular in high-end restaurants, especially in cases where they risk losing a lot of money from clients that make a reservation and do not appear.
What are the benefits of using credit card pre-authorizations?
- Chargebacks prevention – if the funds have not been captured, the cardholder cannot issue a chargeback. Pre-authorizations holds are great for processing transactions while taking anti-fraud measures to make sure that the credit card is not stolen.
- Costs reduction – by using pre-authorizations, the merchant has time to make sure that he has enough inventory to satisfy all orders, and there will be no discount rate charges for orders that cannot be delivered. By using an authorization hold, you can let your clients know that you are out of inventory without having to issue a refund.
- Overall customer satisfaction – as a customer, ordering goods and not receiving them due to lack of inventory can be very frustrating, so having a policy that lets them know about an authorization hold until inventory is confirmed can be really helpful for their overall satisfaction.
- Funds guarantee – by putting an authorization hold on services like a car rental or a hotel stay, you make sure that there will be enough funds to cover any additional charges or damages. In this case, pre-authorization serves as a security deposit for any incurring charges.
Pre-authorized payments with MYMOID
MYMOID is proud to announce the launch of its new generation of secure pre-authorized payments, especially designed to improve efficiency and overall customer satisfaction. As a company that values innovation, quality and usability, providing an outstanding experience for our customers is the main driving force for everything we do. That’s why our authorization hold solution is carefully designed and developed for businesses that want to get the optimum experience for themselves and their final clients.
How does our pre-authorized payments service work?
If you are charging the credit card immediately after the completion of a payment order, you face higher risks for chargebacks and insufficient funds. However, our pre-authorized payments provide the following control of your payment process:
Step 1: At the checkout, MYMOID provides the customer with a payment link or a payment order. Once it has been completed by the user with his card details, our payment gateway connects with the payment network, communicating to the card issuer that a certain amount of money will be put on hold.
This process gives the merchant a much better control over his operations, as he has up to 7 days to check the credit card for fraud, sufficient funds, or just to check his own inventory to make sure that he will be able to make the delivery.
In particular cases, the merchant can charge up to 15% more of the sum that has been put on hold. This is a very common practice for car rental companies, in situations where a car has been returned with damages, to make sure that the customer will have enough money to cover them.
Step 2: After the money has been put on hold, the merchant usually has between 72 hours and 7 days to decide whether to capture the funds or release them back to the customer. This gives him the time to perform validity checks and make sure that everything is in order.
Step 3: In case that everything has been successfully validated, the acquiring bank gives a positive response for the transaction, and the merchant receives his money. Otherwise, the sum is released to the customer.
With MYMOID´s payment gateway, you can perform pre-authorizations and receive a much bigger control over your operations. We believe in true payment experience, that’s why we are working every day to improve and optimize our solutions.