Authorization Time Limits: Explained

Alex ForbessBusiness3 Comments

There are time limits at every stage of the dispute lifecycle. There are time limits for inquiries and retrieval requests, and there are time limits for chargeback responses. But there are also time limits within the transaction cycle, and authorization time limits have significant weight in the process. These time limits vary not only by transaction type (i.e., CNP vs. CP) but also by one’s merchant category code (MCC). This post will explain which authorization time limits apply to you. Knowing this information will be a great asset in handling authorization-related disputes.

Why Are There Authorization Time Limits?

In short, authorization time limits are used to ensure that the cardholder’s funds actually exist for a transaction to take place. Prior to authorization approval, the funds are ‘on hold’ until the merchant requests an authorization code from the issuing bank. The process is done in electronically (sometimes in near real-time) and the issuer’s response tells the merchant how they should proceed.

Here are some examples that decide the funds’ fate after it has been on hold:

Reasons for Approval

The card was not reported lost and/or stolen; AND the cardholder has sufficient funds to fulfill the transaction.


Reasons for Declined

The card was reported lost and/or stolen; OR the cardholder has insufficient funds to fulfill the transaction.


Reason for Expired

The card has reached its expiration date up to, or prior to, the point-of-sale.


Reason for Incorrect PIN*

The cardholder entered the incorrect PIN. Authorization has been declined at that point.

*The cardholder may re-enter the PIN, but failure to enter the correct PIN within ‘X’ number of attempts may result in a Declined or a Pick Up Response.


Reason for Partially Approved

The card was not report lost and/or stolen, but the cardholder only has partial funds to fulfill the transaction.


Reason for Pick Up*

The card was reported lost and/or stolen.

*Only during CP transactions. The ‘Pick Up’ Response instructs the merchant to literally retain the card at point-of-sale. The person holding the card may not be the cardholder, and the actual cardholder may have reported a lost or stolen card.


Reason for Point-of-Balance Return*

The issuer has requested you to provide the remaining balance of the cardholder’s card.

*Only for prepaid cards (i.e., Visa Prepaid). Gift cards are also applicable for this response.


Reason for Referral*

The issuer indicated there is a problem with the card involved in the transaction. Until the problem is resolved, authorization has been declined.

*In this scenario, you need to refer the cardholder to contact his or her issuer in order to resolve the problem.

Does Authorization Mean Settlement?

Please note that an authorization response does not mean the transaction has been settled. The responses above instruct merchants to take the appropriate action after the card was swiped, EMV-inserted, PIN-inserted, or inserted online. Merchants can e-request an authorization code (and soon settle the funds) once they receive an Approval Response.

Why Put Authorizations On Hold?

Authorizations on hold offer some protection for all parties involved in the transaction. For example, cardholders who order shipped goods may not see a settlement on their billing statement until the goods arrive at their shipping address. Merchants, especially those in the OTA and travel industry, may want to put authorization on hold until they know the estimated costs will be paid by the cardholder (in full) once their reservation has expired.

Authorization Time Limits

Authorization time limits represent the timeframe in which an Approval response is valid for a Transaction Date. That date is when the transaction is officially settled, meaning the funds are settled in the merchant’s account, and the withdrawn funds are displayed in the cardholder’s billing statement.

While an authorization is on hold, issuers will request some merchants to provide initial, or estimated, transaction amounts to the cardholder. That will give him or her a pending notification of how much funds will be withdrawn and, if your merchant descriptors are clear, whom will be receiving said funds when the transaction is settled.

As mentioned earlier, authorization time limits will vary by transaction type and by one’s MCC. Fortunately, Visa provides a well-detailed table that outlines all of the time limits that every merchant should be aware of. By knowing how an Approval is valid, you will know how much time you have to settle the transaction.

Transaction Type / Merchant / MCC
How long the Approval is valid for a Transaction Date

Aggregated Transaction in a Card-Not-Present Environment

Seven calendar days from the date on which the first Authorization Request received an Approval

In-Transit Transaction

Within 24 hours* of the Approval Response

*Authorization may occur after the transaction is completed, while in transit, or when the cardholder reached his or her final destination.

Installment Transaction

Prepayment

Recurring Transaction

Unscheduled Credential-on-File Transaction

Card-Not-Present transactions classified with MCC 4121 (Taxis and Limousines)

The day when either of these transactions occur is when a Approval Response is valid.

Transactions* initiated at a turnstile, fare gate or point of boarding at a transit merchant classified with MCC 4111, 4112 or 4131



*Initial Authorization Request is required.

No later than 7 calendar days* from the date of the Approval Response to the Initial Authorization Request**.

*The time limit the US Region is 3 calendar days.

**Any Incremental Authorization Requests do not extend this timeframe.

Transactions* initiated by merchants who offer one of the following services:

Aircraft rental

Bicycle rental

Boat rental

Equipment rental

Motorhome rental

Motorcycle rental

Trailer parks and campgrounds

*An Estimated Authorization Request is required.

No later than 7 calendar days from the date of the Approval Response to the Estimated Authorization Request*.








*Any Incremental Authorization Requests do not extend this timeframe.

Transactions initiated by merchants who offer one of the following services:

Cruise Line

Lodging

Vehicle Rental

*An Estimated Authorization Request is required.

No later than 31 calendar days from the date of the Approval Response to the Estimated Authorization Request*.




*Any Incremental Authorization Requests do not extend this timeframe.

Mass Transit Transaction

No later than 3 calendar days from the date of the Approval Response

Other Card-Not-Present Transactions

No later than 7 calendar days from the date of the Approval Response

Other Card-Present Transactions

The day when either of these transactions occur is when a Approval Response is valid.

Source: Visa Core Rules and Visa Product and Service Rules

What Happens If I Don’t Respond To An Approval On Time?

Merchants will need to initiate an Authorization Reversal if the transaction is not settled after the authorization time limits expire. This action basically removes the cardholder’s funds from being on hold, and he or she is free to spend that money elsewhere. Additionally, merchants may have to initiate an Authorization Reversal if the settled transaction amount is more or less than the agreed amount during the transaction. Merchants need to complete this action within 24 hours in either scenario. Failure to do so could put your business at risk of misuse fees by the card networks—and disputes submitted by the affected cardholder.

What Happens If I Do Respond To An Approval On Time?

Settling a transaction before the time limits expire can produce at least two outcomes. One is you will receive settled funds in your merchant account (and that is the most favorable outcome). Another outcome is receiving data points that prove authorization took effect.

But, of course, authorization is only one element within the transaction cycle. There are other elements to consider when proving the transaction was settled in its entirety, and here are some examples of these elements:

  • Logistics: There needs to be documentation that proves the goods arrived to the cardholder, whether it is a physical or a digital good.

  • Customer Usage: For digital goods, there needs to be documentation of the cardholder using the product when:
      • The funds are on hold; AND
      • The funds are officially settled

  • Quality Assurance: The product, whether it is a physical or a digital good, needs to meet QA requirements in order for the cardholder to enjoy their purchase.

Your odds of challenging a dispute are favorable if the documentation checks out. So it would not make sense to have your team perform tasks that drain precious time. There are software already available that helps merchants not only to automate authorizations, but to also automate dispute management.

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