In this article, we take a closer look at three key elements of authorization for travel companies. Read on to discover targeted actions that you can take to optimize your acquiring set-up, helping boost conversion and generate more revenue for your business.
Completing a payment card transaction involves two steps: authorizing the purchase and settling the transaction. During authorization, merchants have the option of placing a temporary hold on the customer’s funds, without actually debiting their account. This is known as a pre-authorization or authorization hold.
The duration of an authorization hold will differ depending on how a transaction is flagged. For example, transactions marked for some products as “final authorization” will only be held against the customer’s balance for seven days, whereas transactions marked as “pre-authorization” are held for up to thirty days.
When the funds need to be debited from the customer’s balance, a second step “capture” request is made. This converts the hold to an actual charge. Many merchants prefer to settle right away, but prompt settlement isn’t always the best option for travel payments, where bookings are often made far in advance. In cases like this, pre-authorization would be a more suitable approach.
Pre-authorizations can be a useful way for merchants to save money and reduce risk. If a consumer cancels a booking before the transaction is settled, the funds are simply released from hold. This saves you from the hassle of issuing a refund and any fees that the bank or processor might impose. Similarly, as long as the funds for a transaction are held but not settled, the cardholder can’t dispute the transaction or issue a card chargeback—protecting you against fraud, chargeback fees and administrative costs.
It’s common for merchants in the travel industry to validate a customer’s card with $1 authorization. This allows you to confirm that a card is valid and works before making an actual transaction.
$1 authorizations can be problematic for two reasons. First, some customers might get confused when this charge appears on their statement. It could cause dissatisfaction or even prompt them to initiate a chargeback.
Second, and arguably more importantly, it’s easy for merchants to forget they’ve made these transactions and fail to refund the extra amount or cancel the transaction within the mandatory time period. Card schemes have very specific rules on how long authorizations can remain open, so failing to complete transactions can leave you vulnerable to fines.
To avoid these issues, we recommend using zero-amount authorizations whenever possible. These test transactions don’t come with the same risks as $1 authorizations. However, not all issuing banks accept zero-amount authorizations, so be sure to check each issuer’s policy beforehand to keep your authorization rate high.
Another useful feature in the travel sector is the ability to use incremental authorizations. This is where additional increments are added to a base charge to cover extra services or fees incurred over the course of a transaction.
For example, a hotel may initially authorize a payment of USD500 to cover a room booking. If the guest makes additional purchases, such as food and beverage items, or decides to add an extra night to their stay, the merchant can add these incremental charges to the original authorization.
Incremental authorizations do not replace the original authorization; each is a unique authorization in its own right, and they are all connected by a common identifier—allowing them to be settled as a whole.
You should bear in mind that not all acquirers and card schemes support incremental authorizations. What’s more, where these authorizations are accepted, merchants must meet specific criteria, which can vary between card schemes and are not always easy to follow. Partnering with a payment services provider can help guide you through the complexity of incremental authorizations, allowing you to maximize the benefits of this payment processing capability.