When a merchant would like to reserve money from the client's fund without charging them at the spot is called pre-authorisation (also known as “pre-auth”). A pre-authorisation is valid for up to 7 days and (in secured-pay’s case) valid for credit and debit card transactions. A pre-authorisation is a temporary funds hold, not a true charge, thus it will usually only show up on a banking statement as "pending charges”. Pre-authorisation is commonly used by online merchants prior to running a full authorisation for a purchase. If the pre-authorisation fee is refused by the bank or credit/debit card company, the full charge is cancelled, and the purchase will not be processed.
Pre-authorisations can help improving customer satisfaction and reducing costs.
Improved Customer Satisfaction: Withdrawing funds from a customer’s account and not delivering goods in a timely manner can infuriate consumers. In the majority of the cases, if a merchant has pre-auth in place, end customers will only be charged after inventory is confirmed. Also, in some cases, customers will only be charged when they successfully receive the goods. Having pre-auth in place improves customer satisfaction in case goods are not ready or in-stock to be delivered at the time of the purchase.
Reduced Costs: Keeping inventories can be quite costly and therefore many merchants decide to minimize the amount of goods stored in-house. The fact that merchants can confirm inventory before authorizing full payments can help reducing discount rate charges for goods which cannot be shipped.
In order to start using pre-authorisation in an online store a merchant must have a payment processor (such as secured-pay) that supports pre-authorisations. When integrating a payment gateway, you have to specify what type of transaction you want to process. Most shopping carts offer pre and full authorisation to run your transactions. When building an online shop via a shopping cart merchants will also have the option to choose between the two transaction types. There are other terminologies used by shopping carts which should be kept in mind. In some cases, a shopping cart can refer to pre-authorisation as “reserve” instead of “pre-authorisation”. It's also important to note that not all shopping carts can support pre-authorisations, therefore it is important to check with the respective shopping cart organization if they are eligible to work with pre-auth.