Authorization Network

Authorization Network

An authorization network is the combination of parties involved in issuing authorization of a credit card transaction.

There are multiple parties involved including the merchant (business), the issuing bank of the card, the credit card network, and the payment processor.

It is easiest understood when using a sample transaction as an example.

Let’s say a customer presents their credit card for payment either in person or via a payment gateway online.

The first step in the authorization network is that card information is transmitted, via a phone or internet connection, to the acquiring bank’s system or the processor.

From there, it is forwarded to the appropriate credit card network where the payment is authorized or denied.

The transaction information then heads back to the issuing bank where authentication takes place. This part of the network verifies the credit card number, expiration, billing address, and security code if applicable.

At this point either an authorization is issued or the transaction is declined. If there is a type of mismatch with the information, it can result in a transaction being denied.

There may also be insufficient funds on a card which would also lead to a transaction being declined.

If the payment is authorized and authenticated, an appropriate response is sent from the issuing bank back to the credit card network and then on to the processor.

For now, the data is held until the third part of the process which is known as settlement. At a predetermined time interval, usually at the close of business, the processing company transmits the information of all the transactions to the credit card companies which then transmit it to the issuing banks.

Funds are then released, minus fees kept by the participating parties, and the transactions are said to be settled when the funds reach the business’ bank account.

Each party plays a role in keeping the network secure and facilitating as much as possible to only allow authentic transactions.