Nearly every American has at least one credit card. It’s convenient for both merchants and customers to process a transaction using a credit card. But it comes with risks. A customer can file a chargeback, which is a request to refund the amount they have spent on a product that didn’t meet the quality standards or the company’s claims. The most common reason cardholders issue a chargeback is the misuse of their stolen credit card.
For a merchant, every chargeback means a loss of revenue and a potential customer. These are especially common in subscription-based businesses that take the card details and personal information of their subscribers and charge them on a predetermined period, such as a monthly or annual basis.
That’s where a credit card authorization form comes into the picture. As the name suggests, these forms are used to pre-authorize either a recurring or a one-time future payment. But is that really necessary? Where can you find these forms and how to use them? Let’s take a look.
Credit Card Authorization Explained
For card-not-present transactions, credit card authorization is used to process payments at a merchant’s retail store or online platform. Authorization is all about transmitting the card details from your payment terminal to the card network to verify the card details and ensure that it’s a valid card.
A merchant can easily gather the card details from an authorization form and input them into the payment terminal. They can also save these cards for future purchases, i.e. if the cardholder is signing up for a membership or any subscription-based service that incurs a monthly or annual fee. Credit card authorization is done to ensure that the cardholder has sufficient balance in their accounts to cover the cost of their purchase. The cardholder fills the card with their details and then inputs it manually into the payment terminal or swipes it at the POS. If they do the latter, a signature is needed to complete the authorization.
The process is quite similar to a customer making a one-time purchase at the retail store by swiping their cards at the machine to input the data and send it for approval. To authorize their credit cards, the cardholder needs to enter these details and send them to the company that processes card payments.
Credit Card Authorization Process
The process of card authorization is pretty simple. Here’s how it is done.
Step 1: The merchant enters the cardholder’s card information into their payment terminal, which then transmits this data to the payment processor or the merchant’s acquiring bank.
Step 2: If you inserted a chip card, you are supposed to validate it using the PIN code. Or, a signature is required if the card was manually swiped at the point of sale system.
Step 3: The payment processor checks the funds in your account and the validity of your card with your card network and approves or declines the card.
Step 4: If the credit card is approved as the payment method for recurring transactions, the merchant can store it for future payments.
Although the authorization steps are the same in most cases, they may vary nation-wise. For instance, if you are using Canadian credit cards, you will be required to tap them for transactions less than $250.
If the cardholder is using an authentic card that has enough balance to cover the transaction cost and doesn’t exceed the card limit, the payment process will approve it. If you are authorizing the card online, you may need to provide all the details on the card, including the cardholder’s name, address, the three-digit code at the back of the card, and the expiry date.’
However, if your credit card fails for some reason, try using a card from another card network.
What is a Credit Card Authorization Form?
Now that you have understood the authorization process, what is the use of the authorization form? Simply put, a credit card authorization form is a formal document signed by the cardholder. It gives companies their card details and permission to deduct a specific amount on a recurring basis for a specific period.
The authorization remains in effect until the cardholder terminates the subscription. The total amount a merchant will charge to this credit card depends on the kind of service they offer. It could be a fixed fee or a variable fee, which may vary depending on the services. The form requires the cardholder to input their card details and confirm that they allow the merchant to charge them a recurring payment. Here’s what the authorization form has:
- Cardholder’s name
- Email or mobile number
- Card details, including the credit card number, expiry date, CVV code, and bank account number.
- The amount that will be deducted from their cards
The cardholder enters their name and the merchant’s name who they authorize to charge them at specific intervals.
When Do You Need to Use the Credit Card Authorization Form?
When a cardholder signs up for a subscription-based service, they might have to sign an authorization form, which gives merchants permission to charge the card for a fixed period. Oftentimes, cardholders skim this page and click on Agree without reading the full document. The pre-authorized payment agreement form is commonly used by businesses offering subscription-based services. Examples are a gym membership, streaming service, news subscriptions, etc.
Hotels might also ask you to sign the payment authorization form at the time of check-in. Even if you have paid the full amount during check-in, they will keep your details in the record just to cover the cost of any damage you may cause to the property. They will keep these for a few days after your checkout. Likewise, you might receive a payment authorization form when applying for passport renewal. The forms are sent over email and the government will charge your credit card through the information you have entered in the authorization form.
Lastly, for all kinds of recurring payments, the authorization form is used. That’s one way to get cardholders’ authorization to use their credit cards. The main purpose of using authorization forms is to ensure that your card-not-present transactions are handled well. This is also one way to mitigate the security risks associated with these transactions.
Protection from Chargebacks
Chargebacks have become a common occurrence in card-not-present transactions. Many times, customers sign up for a subscription service and agree to get a specific amount deducted from their bank accounts at specific periods. However, they forget the subscription and issue a chargeback when they see the payment deduction on their credit card statement. Chargeback refers to the process of getting a full refund of the amount that’s unnecessarily deducted from a customer’s card.
While this was designed to protect customers’ interests and prevent fraudulent activities, it has resulted in an increased number of friendly frauds. That’s when a customer intentionally issues a chargeback for the product that was delivered to them and it was up to the mark. In other words, there’s a possibility a customer might issue a chargeback request against a legitimate transaction. An authorization offers protection against such chargeback requests, as a customer can’t dispute a chargeback for a payment they have authorized the merchant to deduct from their card.
How Do You Get a Payment Authorization Form?
Now that you know what all information is covered in these forms, the next big question is where do you find it? You can find the ready-made template for credit card processing authorization on the internet. You can download the template and fill in the form. As mentioned above, the form contains your basic information, like your name, billing address, cardholder’s name, date of signature, etc.
Once you are done filling and signing the form, you can forward it to the merchant. Alternatively, a merchant will provide you with this form (when you get a membership or a service that involves recurring payment) in person. You need to check the box that says you authorize the merchant to deduct a fixed amount from your account. The credit card has the details regarding when you’d like to end the subscription, but you can also cancel it manually. Just call your merchant to know the process for ending the service. Once the authorization is canceled, they will no longer be authorized to charge your card.
Does Your Business Need a Credit Card Authorization Form?
Some businesses need a credit card authorization form due to the nature of their business. For those offering subscription-based services, this form is pretty useful. Once the customer has signed it, the merchant doesn’t have to validate the transaction with them every time they charge the customer’s credit card. Since the customer has already given approval for the recurring payments, a merchant can deduct payments.
The payment landscape has transformed in the last two decades. From cash-only payments to a host of payment options, customers get the convenience of paying through a suitable method. The authorization form comes in handy for customers that have subscribed to a specific service.