Authorization

Let’s say that John decides to go to Hawaii on vacation. He books his hotel using Expedia.com and he makes the payment using his credit card. He flies to Hawaii and checks into his hotel.

At the registration desk, the clerk asks for his credit card. John says that he has already paid for the hotel. The clerk replies that nothing is going to be charged to the card. Instead, the clerk is only going to “authorize it” for any future purchases. John then hands his credit card to the clerk, who swipes it and hands it back.

What the clerk did is called “authorization”. I will expand on what this means.

John enjoys his vacation, spending a lot of time by the pool. One night, he orders a “pay per view” movie which costs $15. The following morning, he checks out of his hotel and the clerk says John has incurred a bill of $15, so the clerk charges $15 to John’s credit card against the authorization that was done days earlier. This process is called “capturing”.

During the authorization, the hotel wanted to ensure that John had enough credit on his card to pay for incidental expenses like ordering movies, meals, and laundry. Since there is no way to know how much expense John will incur during his stay, the authorization is performed for a reasonable amount. Depending on the type of the hotel this authorization amount might range from $250.00 to $25000.00 or even higher.

The authorization amount guarantees the hotel that the authorized amount is available to the customer in case the customer owes that much amount. Note that no charge is made against the card at this time.

Also note that authorization does count towards your limit. Let’s say that John’s credit card has a limit of $1500. If the hotel authorizes his card for $500, then his credit limit is decreased by that amount. Now if he attempts to buy a flight ticket to London and the cost is more than $1000, his credit card will be declined.

Another Example of Authorization and Capture

MissionBicycle is a site where you can build your own custom bike. Let’s say that John wants to buy a bike and the total cost is $900. John pays $900 for the bike using their online form. The website will immediately authorize John’s card for $900. This means John has enough room on his card to spend $900. Let’s say that it takes one week for the MissionBicycle team to build the bike. Once they have completed the work, they ship the bike to John and “capture” $900 on his credit card.