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Pre-authorisations explained

October 15, 2019 at 1:00 PM

 

The T&E industry has many special provisions related to payment card acceptance not available to general retail. Taking pre-authorisations, topping up authorisations or applying charges to a card after the guest has departed are just three examples. We answer the most frequently asked questions about pre-authorisations.



1. What is an authorisation?

An authorisation is the process by which a card issuer or processor approves a card transaction. You receive an authorisation code in the authorisation response message, which is usually recorded on the transaction receipt as proof of the approval. Once the transaction has been approved, the card issuer knows to expect a clearing message before they settle the funds. The card issuer is not settling the funds at the time of the authorisation, merely ring-fencing them for eventual settlement later.

 

2. What is a pre-authorisation?

If the final transaction amount is not known at check-in or embarkation, a pre-authorisation allows you to estimate the final transaction amount and receive the protection of an authorisation. Just like an authorisation, a pre-authorisation confirms that the cardholder’s account is valid (i.e. the card has not been registered as lost or stolen) and is within the available spending limit. In this way, a pre-authorisation helps protect you from fraud. A pre-authorisation does not identify the cardholder or guarantee payment. A pre-authorisation is also known as an authorisation hold, which is a good description of what happens behind-the-scenes. The card issuer places a hold on or ring-fences funds, which decrements the cardholder’s spending limit (also known as ‘open to buy’ or available balance).

 

3. How long is a pre-authorisation valid?

The validity time of a pre-authorisation depends on the card scheme. It can be up to a month in some cases. Please also see the questions on top-up authorisations and reversals below.

 

4. When should I do a pre-authorisation?

Do a pre-authorisation at check-in or embarkation if the final transaction amount is not known. In the case of hotels, the estimated amount for pre-authorisation can be based on the customer’s intended length of stay at check-in, the room rate, any applicable taxes or charges etc. In the case of cruise line, the estimated amount for pre-authorisation can be based on a signed statement of intent from the cardholder to buy goods and services aboard the ship for a specified amount.

 

5. How do I do a pre-authorisation?

Terminal types and acquirer contracts differ so it is difficult to give general advice. Check your terminal operating guide.

 

6. When should I do a final authorisation?

Generally, do a final authorisation at check-out or disembarkation. This will complete the transaction and trigger the process for the cardholder’s card to be debited and your account to be credited. However, some terminals may convert a pre-authorisation into a final authorisation automatically. It is difficult to give general advice, so check your terminal operating guide and acquirer contract carefully.

 

7. What is a top-up or incremental authorisation?

Periodically you may need to revise (top up) an pre-authorised estimate, for example, if a hotel guest wishes to extend their stay. In the case of cruise lines, you may wish to perform regular top-up authorisations during the cruise to ensure that passengers have the funds to cover their expenditure on board. You must disclose top-up or incremental authorisations to the customer.

 

8. What is a reversal?

A reversal negates or cancels out a previous authorisation request. In the case of pre-authorisations, if the final transaction amount is less than the pre-authorised amount, the difference should be reversed within 24 hours of check-out or disembarkation. This closes out the transaction and enables your customers to access the full balance available on their card account.

 

9. What is a delayed transaction?

A delayed transaction is for goods, services or other charges that remain unpaid after check-out or disembarkation, and for which the customer has given prior consent to charge to their payment card. This may include room service, telephone, mini bar charges or damage.

 

10. What is Scheme Reference Data?

The card schemes, Visa, MasterCard and Maestro have mandated the use of ‘Unique Transaction Identifier’ (Visa) or ‘Trace ID’ (MasterCard/ Maestro) to be included in all transaction settlement records. The generic term is ‘Scheme Reference Data’ and means that a unique transaction ID is used throughout

 

For more information, please see the PXP Financial Hospitality Guide.

There is no one-size-fits-all approach to data security and the hospitality industry has some particular requirements. For a free 30-minute consultation, please complete the form below or call 0844 209 4370.

 

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Tags: Payments, MPOS, On-Premise Payment

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