What is authorization (authorization Nation)? A thorough explanation of how Credit card payment works

What is authorization?

"authorization" is an abbreviation for "Authorization" and means "authorization authorization" or "authorization".

payment In terms of processing, when a credit or debit card is used, it is a process to check whether the credit card can be used (whether it is within the expiration date, whether it has exceeded the limit, etc.), and temporarily secure the usage limit.

authorization is an essential process for Credit card payment, as it plays a role in preventing fraud and ensuring the safety of transactions.

How authorization works and how it works

▲ authorization flow

authorization is mainly communicated between "credit card users", "stores/businesses", and "card companies". This interaction is instantaneous and almost unaware of the user.

1. Ask a customer to enter their card information and ask for a payment: Someone enters their credit card number, expiration date, Security Code, etc., in your online or physical store to start a payment.
2. The store system queries the card company: The store's payment system sends the card information and payment amount entered to the card company.
3. The card company checks validity, limits, and potential fraud: When the card company receives the request, it instantly checks whether your card is valid, if it has exceeded the spending limit, and if there are any suspicions of fraud.
4. Approval results are sent back to the store: The card company returns the check results to the store's payment system. Once approved, the payment is completed and the transaction is closed. If it is "rejected", the transaction will not be closed.

In this way, authorization enables secure payment by allowing card companies to review and approve transactions in real time.

Please note that credit cards issued by Japan will not be debited once you make a authorization. The item may appear as indeterminate.

On the other hand, in the case of debit cards issued by financial institution or prepaid cards that are used after pre-topping up the amount, the authorization and debit process will be processed at the same time.

Why do we need authorization?

There are two main reasons why authorization is needed.

To check the available amount

Each credit card has a spending limit. authorization, the card company checks whether the transaction amount is within this limit. This prevents customers from making purchases that exceed their payment capacity and prevents stores from accepting transactions that are not payment possible.

To prevent credit card fraud

authorization prevents card fraud due to theft, skimming, etc.

The card company's system checks the validity of the card for each transaction, so if unauthorized card information is used, it can be detected at the authorization stage and the transaction can be stopped. This not only protects cardholders but also reduces the risk of stores losing money due to fraudulent transactions.

Differences between the two authorization methods and execution timing

There are two main methods of authorization: "automatic authorization" and "manual authorization", each of which is executed at different times.

Automatic authorization

Automatic authorization is a method in which a payment system built into an e-commerce site automatically executes the authorization as soon as a transaction occurs.

Pros:

• Quick payment: Since it is hands-free, payment processing is fast and reduces customer waiting time.
• Efficiency: It can automatically process a large number of transactions, making it suitable for e-commerce sites and stores that handle many products.

Cons:

• Inventory risk: If inventory is shared with the e-commerce store, it may be out of stock after ordering, and cancellation procedures may be required.

Manual authorization

Manual authorization is a method in which business representatives manually perform authorization through a management screen provided by a payment processing company company, for example.

Pros:

• Flexibility: Flexibility for transactions that require individual verification, such as high-value items or pre-ordered items.
• Inventory management: After receiving an order, you can run a authorization when inventory and services are ready to be delivered, avoiding problems such as out of stock.

Cons:

• Time and Effort: Due to the manual work, processing time is time-consuming and can also lead to human error.

Differences between authorization and account update (Araigae)

There is a "account update" in the process similar to authorization.

account update is the process of updating the card's expiration date or number, while authorization is the process of checking if it is available for each actual transaction. Using both together increases the stability of the recurring payment service.

When is authorization not approved?

As a result of authorization, it may be rejected (so-called "authorization error" or "authorization NG").

The main causes are:

• Exceeded Spending Limit: If you try to payment an amount that exceeds your card spending limit.
• Misentered card information: If the card number, expiration date, Security Code, etc. are incorrect.
• Expired: If your card has expired.
• Card suspension: If the card company has notified you of theft or loss, or if the card company has temporarily suspended the use of the card as a suspicious transaction.
• PIN mismatch: If you make a mistake multiple times at a store payment that asks you to enter your PIN.

These errors require users to check their card information or the business to contact the card company.

Reference: GMO Payment Gateway Merchant FAQ: [Error Code] Credit Card/Error Code (G System)

Security measures to prevent fraud outside of authorization

authorization is one of the ways to prevent fraud, but it alone does not cover all risks. To ensure stronger security, it is important to combine it with the following measures:

Identity Authentication (3D Secure 2.0 / EMV 3-D Secure)

It is an additional identity verification service that asks you to enter your card information in addition to your card information when you payment online, such as a password or one-time password. This greatly reduces the risk of fraud because even if your card information is stolen, you can only payment it yourself.

Security Code (Face Authentication)

It is a three- or four-digit number on the back (or front) of your credit card. By asking for this code when payment online, you can verify that you have a physical card as well as your card information.

Fraud detection system

It analyzes transaction data (purchase time, location, amount, etc.) in real time to automatically detect and block suspicious transactions that deviate from normal usage patterns. By leveraging AI and machine learning, it can capture signs of more advanced fraud.

Some services provide guarantees in the event of a chargeback by installing a system, so it is a good idea to check with the payment service provider or payment processing company company.

Reference:GMO Payment Gateway Security Solutions

authorization Post-Credit card payment Sales Processing

After the authorization is approved, you must "process sales" to finalize the sales.

There are two ways to process this sale:

Automatic sales method

authorization is a method of automatically processing sales for completed transactions.

• Suitable services: Product sales e-commerce sites and services that require immediacy
• Features: Smooth from payment to sales processing, enhancing customer satisfaction.

Designated sales method

authorization After that, the sales process is performed at a randomly specified time.

• Suitable for: Pre-order and subscription services
• Features: Sales can be confirmed when the shipment of products and the provision of services are confirmed, allowing for flexible operation.

Reference: GMO Payment Gateway Merchant FAQ: What is the difference between credit card/[authorization] and [actual sales] and [capture]?

Summary

authorization is an essential process in Credit card payment to facilitate transactions and prevent credit card fraud. Understand how authorization works and how to handle it properly to build a stable payment foundation.

And from a fraud prevention perspective, combine not only authorization but also other security measures to create a safe and comfortable payment environment for both credit card users and merchants.

We recommend using payment processing company to deploy Credit card payment. GMO Payment Gateway PG Multi-Payment Service provides a large-scale payment base of 21 trillion yen and 7.22 billion transactions (*1) per year, and is fully compliant with PCI DSS Ver4.0.1, the global security standard in the credit industry. We handle not only credit cards, but also various payment (QR code) payment, career payment, CVS Payment, and many other payment method to support business growth.

If you are considering implementing a payment without mistakes, consider the GMO payment gateway "PG Multi-Payment Service".

*1 GMO-PG, EP, PS, figures from July 2024 to June 2025