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Preauthorization (also card authorization, authorization hold or preauth) is a facility that payment gateways such as Cashfree offer to online merchants to temporarily block some amount of funds when a customer places an order. If the order is modified or canceled within a specific time frame (typically 7-9 days), the merchant can mark the transaction void and the amount goes back to the consumer’s original payment source.
Let’s take an example of a transaction where a customer has made payment using a credit card and now wants to cancel the order and get the refund.
Assurance that enough funds are maintained by the customer
No transaction cost (TDR) paid on canceled orders or where refund is requested as the amount goes directly from payment gateway to the customer
Improved customer experience since customers get the refund instantly or within 1-2 hours
Improvement in operational efficiency since the procedure to update refund request in the system and then doing outward payments is avoided
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