Misuse of Authorization Fee

As a follow up to our article explaining Authorization Fees; we cover a Misuse of Authorization Fee in detail below.

On October 1, 2009, Visa began to asses a misuse fee of $0.045 for authorizations that are not settled or reversed within certain time frames. These are sometimes referred to as “ghost” or abandoned authorizations. This fee commonly affects gas stations, ecommerce businesses as well as bars and nightclubs.

 

How an Authorization Becomes a Ghost

When merchants want to simply validate that a card is not stolen a simple authorization is used. This is common to open a tab, start a pump or initiate an order online. Merchants typically perform a $1 auth but this could be as high as $25 or even a few hundred.

Unlike a normal transaction where an authorization is immediately followed with a capture, these types of transactions are “auth only” as the full purchase amount is not yet determined. The problem comes when the settling part of the transaction does not match the original authorization. It is commonly an issue with software that limits matching the original transaction but can also occur in a tab situation when the customer decides to pay with cash.

 

How To Avoid Misuse of Authorization Fees

Visa attempts to reduce ghost authorizations because they restrict the cardholders purchase limits and increases decline frequency. In order to avoid ghosted authorizations and misuse of authorization fees, merchants have 10 days to settle an authorization, except for Travel and Entertainment who must clear within 20 days. Merchants can also reverse card present auths within 24 hours and card not present within 72 hours by using the void process.

In addition an alternate method to verify cardholder data called “Account Verification” can also be used. This is a $0 request and can include AVS and CVV data for added security.

– To learn about authorization fees please visit Authorization Fees

– To learn about voice authorizations please visit Voice Authorization