How Do Credit Card Pre-Authorisation Terms Work For an Online Marketplace?

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Table of Contents

• What is Credit Card Pre-Authorisation?
• Why Use Credit Card Pre-Authorisation?
• Credit Card Pre-Authorisation and Your Online Marketplace
• Key Takeaways
• Frequently Asked Questions

When you set up an online marketplace, you must duly consider what payment methods you will offer your users (if you facilitate payment on your site). It is better to provide options that your sellers will use and methods that your buyers will have access to. You also need to ensure you supply payment options that protect both parties’ interests and offer a certain degree of security. Whether your users decide to accept payments in person or online, credit card pre-authorisation can be a valuable tool for any business. They provide security of payment for your users and a more streamlined transaction process. This article will explain what credit card pre-authorisation terms are and how they work for an online marketplace.

What is Credit Card Pre-Authorisation?

Credit card pre-authorisation refers to a process that temporarily holds funds of a particular credit card to confirm that the buyer has funds available. You may also know them as ‘pre-auth’ or ‘auth-only’ transactions.

There are two steps to the process, which you can see below.

Step 1: Pre-Authorisation

A customer begins a transaction and provides their credit card details. To confirm the customer’s credit card’s validity, a merchant can issue a temporary hold on funds on that card for a specified amount. This hold can last from a couple of hours to several days, depending on transaction completion. The seller does not charge the card, but the customer cannot access or spend this reserved money. When the seller engages in this process, the payment gateway they use will usually assign a pre-authorisation number to this transaction.

Step 2: Transaction Completion

Once the seller provides the goods or services, then they can finalise the transaction. The seller can charge the total amount to the credit card, and the buyer receives what they paid for. The final charge may differ from the reserved hold, but this depends on the transaction itself and the method you use for the pre-authorisation. 

Credit card pre-authorisation is a form of validation. It confirms that the credit card is real and that the customer’s card can pay for the goods or service they purchase through your online marketplace. If the customer decides to cancel their purchase, the seller releases the amount back to their credit card. The payment does not go through. 

Why Use Credit Card Pre-Authorisation?

Using pre-auth transactions can be helpful for your online marketplace where there is a delay between purchase and contract completion. This is why businesses in the hospitality industry will often use credit card pre-authorisation to validate in advance that their customers can pay for accommodation or their bar tab. The process means that you can:

• validate credit card details; 
• confirm that a user can pay from their account with their available balance;
• hold a purchase/booking for a user; and
• secure payment at the appropriate time for a product/service provider.

Alternatively, if you just want to confirm the validity of a credit card, you can use a status check. This charges the relevant card for $0.00, just to ensure it is correct. This is a fast process and useful for online systems. 

Credit Card Pre-Authorisation and Your Online Marketplace

If you provide payment services on your online marketplace, it may be worth considering including credit card pre-authorisation as a part of those services. This would usually involve checking whether your preferred payment gateway allows this function or using software that supports pre-authorisation.

When there is any delay between purchase and customers receiving goods/services, your website users can benefit from having credit card pre-authorisation as an option. If you use buy now pay later services as a payment method, they will most likely use credit card pre-authorisation.

If you do provide this service, be sure to outline its exact functioning in your marketplace terms and conditions. This would include:

• how long the hold lasts for; and
• what amount the hold charges.

Key Takeaways

Where there is a delay between a customer purchasing goods or services and receiving those things, then you should duly consider including credit card pre-authorisation for your providers. This adds an extra level of security for your sellers on your online marketplace so that they can confirm credit card validity and that their customers can pay.

If you would like more information or help with the credit card pre-authorisation terms for your online marketplace, our experienced eCommerce lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to solicitors to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.

Frequently Asked Questions