New in Payments
Debit and Credit Card Preauthorization

Know all about preauthorization on card payments and how it benefits customers and businesses receiving online payments

What is Preauthorization on Card Payments?

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.

How Does Preauthorization Work?

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.

Without Preauthorization

  • Customer makes payment using Mastercard issued by Axis Bank of Rs 10,000/-

  • Payment gateway captures the transaction details and sends Net amount (Rs 10,000 - 2% TDR)

  • ------Customer requests for refund------

    Merchant refunds Rs 10000 to customer but bears transaction charges of Rs 200.

With Preauthorization

  • Customer makes payment using Mastercard issued by Axis Bank of Rs 10,000/-

  • Merchant asks payment gateway to keep payment on hold for 7-9 days and has not received any payment.

  • ------Customer requests for refund------

    Merchant informs the gateway and holds the transaction void and the funds (Rs 10,000) get credited back to customer’s original source (Axis Bank).

Benefits of Preauthorization for Merchants

  • 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

Did you know?
A chargeback can not be issued by a cardholder if the funds have not been captured. This means that online merchants using preauthorization can process transactions without having to worry about chargebacks if using stolen cards.

Preauthorization

Online ticket booking -- travel and entertainment

Online ticket booking platforms such as bus seat booking, train ticket, etc see high frequency of ticket cancelations and modifications. The refunds then take 10-15 days, which is inconvenient for customers as their money is stuck and is costly for merchant since he/she bears the transaction cost even though revenue is refunded. Using preauthorization, platforms are enabling instant refunds.

Hotel room reservation

Hotel rooms are often booked well in advance. Some hotels charge the full tariff upfront while others take only 30-40% as advance. In case the guest wants to cancel the booking or asks for changing the reservation date and room is not available, the hotel needs to refund the amount that can take 10-15 days. Using Preauthorization feature on checkout, the hotel can ensure the availability of funds for itself and easy refunds to guests when needed.

Pre-paid services where deposit amount is collected

A classic example is a self-driven car renting platform where the merchant collects a security amount that covers fixed and variable expenses along with the margin. At the end of the trip, often the balance is adjusted mostly as refund. Using preauthorization, the service provider can put the amount on hold while allowing for an easy refund to the consumer at the end of the trip.

Preauthorization

Option to change order details after completing checkout

Many times, the customer might want to modify the customization of the order (example, size) after placing or add additional items. Having not already completed the transaction can avoid the need for an additional payment in case the cart value changes.

High ticket size products or high return rates

Preauthorisation is suited for high ticket size sales -- online jewellery, for example -- or apparel, where the customer can try the order and return within the refund policy timeline. Here, merchants can use preauthorization and put the order amount on hold. If a return is requested, the merchant can void the transaction and even deduct cancellation charges. If a refund is not requested within the time frame, merchant can capture payment.

Enable Preauthorization on checkout

Enable preauthorization on checkout and give instant refunds to customers while saving on transaction charges

Available on

Debit Card & Credit Card