A complete guide to payment authorization: what it is and how it works

If you're searching for information on payment authorization, chances are you're dealing with the frustration of declined transactions and underperforming approval rates.

Whether it's lost revenue, higher customer churn, or the time-sink of managing failed payments, poor authorization rates can seriously hinder your business growth. You might be wondering why payments keep failing and what you can do to fix it.

This guide will explore how payment authorization works, why transactions are declined, and the strategies you can implement to improve your authorization rates and strengthen your overall payment approval performance.

Curious how much authorization uplift exists in your payment flow? Book a call with Primer.

What is payment authorization and why is it important?

Payment authorization is when an issuing bank gives the green light on a transaction, confirming it's prepared to release the authorized amount of funds from the customer's account.

Before granting approval, the issuing bank conducts thorough checks. This includes verifying the card is valid, confirming the cardholder has enough funds available, and scrutinizing the transaction for any suspicious activity.

Each issuing bank has its own risk model and unique approval criteria for conducting these checks. They might also prioritize certain transactions over others. 

For instance, transactions involving cross-border payments or high-risk businesses may face more extensive scrutiny than standard domestic or low-risk transactions due to concerns around fraud, regulatory compliance, and/or currency conversion. These issuer decisions directly influence your authorization rates.

Payment authorization is also of significance to all parties involved in a transaction: 

• Customer: If payment isn't authorized, customers can’t complete the purchase, leading to frustration and potential transaction abandonment.
• Issuers: Issuers have a duty to protect their customers from fraudulent transactions. They may also be liable for any fraud if 3DS was used and liability shifted from the merchant to the issuer.
• ‍Merchant: Successful payment authorization directly impacts revenue and customer experience. 
  
• Revenue: Merchants can only recognize revenue once payment authorization occurs. It marks the point at which the sale is confirmed and funds are secured.‍
• Customer satisfaction: Customers often hold merchants responsible for any payment authorization issues and declines, even though the issuer makes the final decision. A declined transaction can frustrate customers, damage your brand, and reduce repeat purchases.

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Alternative payment methods will have a different flow—for instance, they'll likely couple authorization and capture.

How does card authorization work?

Payment authorization is a step towards the overall card payment flow that includes several parties and steps. Let's look at the authorization process:

• The customer or merchant initiates the card payment: The journey begins when your customer initiates a payment at the checkout, or when you initiate a transaction using stored debit or credit card details.
• An authorization request is sent: Your payment gateway sends a request to your acquirer, also known as a payment processor. This request includes key transaction data such as card details, 3DS data, whether you or your customer initiated the transaction, whether it's a recurring payment, and whether a network token is used.
• The processor routes the request: Upon receiving the request, the acquirer forwards it to the relevant card network such as Visa, Mastercard, or American Express.
• The card network contacts the issuer: The card network contacts the issuer, who evaluates the request by checking whether the card is valid and the account has sufficient funds to cover the transaction.
• The issuer decides whether to approve or decline the transaction: If the issuer authorizes the transaction, it returns an authorization code. Conversely, a decline or error code is provided if the payment is declined.
• The issuer sends the transaction status to the processor: The card scheme, responsible for overseeing card transactions, communicates the issuer's decision to your acquirer.
• The processor relays the transaction status to the payment gateway: Your payment gateway receives confirmation of the issuer's decision from the acquirer. Then, you inform the customer whether the transaction has been successfully authorized or declined.
• Temporary hold and settlement: If approved, a temporary hold is placed on the cardholder's account. This hold remains until the payment is captured, signifying the funds transfer from your customer's bank to your account.

The way transactions move through these steps can materially influence authorization outcomes. Smart routing helps improve issuer approvals and increase authorization rates.

Learn how payment routing can help you increase your authorization rates

Including an extra potential step: Authentication

Payment authentication through the 3D Secure protocols is commonplace in online commerce, especially in Europe and other markets where it's mandated. Authentication typically occurs before the acquirer routes the authorization request to the card network, although issuers may request authentication following step five. Authentication decisions can really affect your authorization rates. Applying 3D Secure selectively helps reduce unnecessary friction and protects your approval performance.

Why merchants may delay capture following a successful authorization

Merchants do not always capture funds immediately after authorization. Common reasons include:

• Fraud prevention: Merchants can conduct a post-authorization fraud check before capture.
• Inventory management: Authorizing first allows merchants to confirm inventory is there before finalizing the transaction, helping avoid unnecessary refunds.
• Flexibility: Delaying capture provides flexibility in case any changes or adjustments to the transaction are needed before settlement.

This authorization and capture flow applies to card payments. Many alternative payment methods (APMs) combine authorization and capture into a single step, which changes how approval performance is measured.

What happens if payment authorization gets declined?

When payment authorization is declined, you have two options: 

• Inform the customer that the transaction cannot be completed
• Take additional steps to recover the payment and protect your authorization rate.

The success of these recovery efforts often depends on the level of detail provided in the response codes from the payment processor. 

Detailed response codes can offer insights into why the transaction was declined, enabling you to take targeted action. However, many businesses don’t receive this level of granularity, which can leave them uncertain about the best course of action to rectify the issue.

With access to detailed decline codes, you can confidently take specific, informed actions to recover the transaction and increase authorization rate. 

Here are three suggested actions based on common reasons for payment failure:

• Request the customer to use a different payment method. If the payment fails because of insufficient funds, offering an alternative payment method, such as Buy Now, Pay Later can increases the likelihood of approval. More options provides flexibility and protects overall approval rates..
• Trigger 3D Secure (3DS) following aa soft decline from the issuer. If the issuer suggests that they might approve the payment after the customer successfully authenticates through 3D Secure, you can trigger a 3DS challenge. Applying authentication selectively can help convert soft declines into approvals and improve authorization performance, while minimizing unnecessary friction.
• Prompt the customer to use a new card. If the payment authorization fails because the customer is using an expired card, you can ask the customer to use a different card, prompting them to enter updated details that can resolve the issue quickly and recover the transaction.

Five ways to improve payment authorization rates 

Issuers decline transactions to manage risk exposure. While you can’t control issue decisioning directly, you can implement strategies to minimize the chances of authorization failures.

Here are five practical ways to increase payment authorization rates and strengthen overall approval performance:

1. Enable network tokenization: Unlike physical cards, tokens, don’t have expire. Converting a card-on-file into a network token increases the likelihood of issuer approval, even if the original card has expired. Network tokenization is particularly beneficial for subscription businesses, where failed renewals drive involuntary churn. Tokens also provide enhanced security features that  improve payment authorization rates. Visa research found that merchants using network tokens see an average 4% uplift in authorization rates for card-not-present transactions.
2. Use 3D Secure authentication: Implementing 3DS authentication reduces the risk of fraud and gives issuers additional confidence when evaluating payments. It can also shift liability in certain fraud cases. This added layer of security enhances the chances of successful payment authorization.
3. Enable fallbacks: Fallback mechanisms come into play when the primary payment processor encounters issues, and the transaction is rerouted to a backup processor. By setting up fallbacks, you can recover a transaction following a failed authorization. This recovery layer can significantly improve payment authorization rates.
4. Use payment orchestration: Many merchants are adopting a multi-acquirer strategy to enhance their authorization rates. Different payment processors perform better by regions, card type, and transaction scenarios. Understanding these subtleties and routing payments to the processor that'll give your payment the best chance of success is crucial. You can utilize a unified payment infrastructure like Primer to execute this effectively.
5. Adhere to the scheme rules: Failure to comply with the rules outlined by the card schemes negatively affects your authorization rates. Monitor compliance, understand response codes, and maintain strong scheme relationships to prevent poor performance. Work closely with your payment partners to ensure your MID is positioned correctly and not subject to avoidable risk.

For a deeper dive, read our guide: 5 ways to improve your payment authorization rates‍

How Primer can improve your payment authorization rates

While these strategies offer valuable ways to enhance payment authorization rates, implementing them manually can be a complex and resource-intensive process.

Juggling multiple payment methods, acquirers, and security measures often requires advanced systems and payment expertise that you might not have.

This is where Primer comes in, by providing a unified payment infrastructure platform that automates and optimizes these tasks, and helps maximize authorization success without the manual burden.

Here are four ways Primer can help you improve your payment authorization rates:

1. Maximize approvals with intelligent routing and automated fallbacks

Routing transactions to the best-performing acquirers is one of the most effective ways to improve authorization rates. However, doing this manually requires setting up custom logic, managing multiple acquirer integrations, and continuously analyzing performance across regions. 

Primer’s smart transaction routing, powered by Workflows, simplifies this process. It allows you to implement a multi-acquirer setup and ensure that payments are dynamically routed based on factors that you decide, such as location, card type, or transaction value.

 If in-person card payments have higher authorization rates through a specific processor, you can set up the “if-then-else” logic so future payments are processed via that acquirer. Best of all, Primer is a no-code solution, allowing your developers to focus on enhancing your product rather than managing complex payment integrations.

Of course, optimizing payments doesn’t stop at initial routing. A payment decline can easily lead to lost revenue without an automated fallback mechanism. But manually setting up fallbacks requires you to establish retry logic, manage PSP integrations, and interpret decline codes. Errors could lead to unnecessary retries and even scheme penalties.

Primer eliminates fallback complexity by standardizing decline codes across all PSPs to automatically reattempt soft declined payments through the most suitable fallback processor. For instance, if your primary acquirer declines a transaction in Portugal, Primer will instantly reroute the payment to your chosen secondary acquirer toboost your chances of securing authorization without manual intervention.

These automated fallbacks protect a significant amount of revenue. Banxa, a global leader in crypto infrastructure, achieved a 22% success rate uplift and recovered $7 million in revenue using Primer’s automated fallback functionality.

2. Increase authorization success with 3DS authentication

Failed 3DS checks are a leading cause of lower authorizations and lost revenue. Primer helps you with adaptive 3DS implementation, which balances security with a smooth user experience. 

Unlike most payment gateways, which tie 3DS authentication directly to a specific processor, Primer 3DS is processor agnostic, meaning we handle 3DS before contacting the payment gateway. So, if a transaction fails with one processor, it can be retried with another without forcing the customer to authenticate again.

This reduces friction while protecting authorization rates.
Primer applies 3DS selectively using risk-based logic so authentication is triggered only when data indicates it increases the likelihood of issuer approval. 

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For instance, say your customer in Europe is making a high-value purchase. Primer would analyze this data and determine which processor is most likely to succeed.

Because Primer triggers 3DS before routing the transaction, even if a payment fails, we can automatically retry the transaction through a different processor without requiring the customer to authenticate again.

3. Reduce declines and protect recurring payments with automated network tokenization

Network tokenization is a powerful tool for boosting payment authorization rates, and with Primer, it’s an automated, hassle-free solution. 

Rather than dealing with the complexity of provisioning tokens manually or handling card updates yourself, Primer does it all in the background. Tokens are provisioned automatically, so you don’t have to worry about interruptions. Once network tokens are in place, they help secure higher authorization rates by reducing friction and ensuring transactions go through smoothly.

Network tokenization also ensures recurring payments continue without disruption, even when card details change. This helps maintain smooth payment flows, reduces the risk of declined payments, and keeps your payment authorization rates high.

4. Optimize authorization performance with real-time insights from the Observability dashboard

To optimize your authentication rates, you need to have visibility across all your payment data. But that’s hard to do if you have to log into each processor account portal to get a view of what is and isn’t working. 

Primer’s Observability dashboard consolidates all your payment data across processors and methods in one place, allowing you to easily monitor authorization performance in real time. You can track trends, identify bottlenecks, and spot underperforming acquirers, enabling you to make quick adjustments to your payment routing rules and improve authorization rates.

For instance, if you notice higher decline rates on your dashboard from a particular acquirer in a specific region, you can adjust routing rules immediately using Primer’s platform.
Here's a short clip of what the Observability Dashboard looks like:

Primer’s real-time insights help you stay proactive, making data-driven decisions to ensure your payments are always optimized for success. The platform will also alert you when your payment performance significantly changes, allowing you to quickly adjust and optimize your strategy.

How Dabble achieved a 96% authorization rate with Primer during the 2023 Melbourne Cup

Dabble, a fast-growing social betting app, needed to maintain high authorization rates during the 2023 Melbourne Cup, one of Australia’s highest-traffic betting events.

By integrating with Primer, Dabble was able to dynamically route transactions to the best-performing processors. This smart routing was essential for improving authorization rates becauseDabble could send transactions through processors most likely to approve them. 

One of the most impactful improvements came from Primer’s automated fallback system. When a transaction was declined by one processor, Primer instantly retried it with a secondary processor, significantly increasing the chances of authorization. 

Primer also allowed Dabble to integrate new payment methods without the need for extensive developer resources. This further contributed to improved authorization rates by offering more ways for users to complete transactions.

As a result, Dabble:

• Achieved a 96% authorization rate during the 2023 Melbourne Cup
• Recovered nearly US$50,000 in revenue through automated fallback workflows
• Integrated multiple payment methods and processors seamlessly, boosting approval rates without straining developer resources

Read the full case study: Dabble picks a winner by partnering with Primer

Use Primer to optimize authorization rates and maximize revenue

Revenue growth is directly linked to payment authorization performance. Even small improvements in approval rates can translate into significant revenue uplift at scale.

Primer is built to help you do just that. By leveraging smart routing, automated fallbacks, network tokenization, and adaptive 3DS, Primer simplifies the otherwise complex process of optimizing payments. Instead of managing disconnected tools and processor relationships manually, you gain a unified layer that continuously improves approval performance.

With our unified infrastructure, you’ll not only boost authorization rates but also reduce avoidable declines that’ll enhance your overall customer experience. Ready to see how Primer can optimize your payment flows? Book a call with our experts.

Frequently Asked Questions (FAQ)

1. What is payment authorization?

Payment authorization is the process where the issuing bank reviews a transaction request and decides whether to approve or decline it. The bank checks factors such as card validity, available funds, and potential fraud risk before returning an approval or decline response. If approved, the bank places a temporary hold on the customer’s funds until the merchant captures the payment.

2. What is a good payment authorization rate?

A “good” authorization rate depends on factors such as industry, geography, and payment methods, but many ecommerce merchants aim for authorization rates above 90–95%. Lower rates can indicate issues such as suboptimal payment routing, excessive fraud checks, incorrect transaction data, or issuer distrust.

3. Why do payment authorizations get declined?

Payment authorizations may be declined for several reasons, including insufficient funds, incorrect card details, suspected fraud, expired cards, or issuer risk policies. Sometimes declines occur because of technical factors such as poor payment routing, missing authentication data, or outdated stored card credentials.

4. What is the difference between authorization and capture?

Authorization confirms that the issuing bank is willing to release funds for a transaction and places a temporary hold on the customer’s account. Capture is the next step where the merchant finalizes the transaction and the funds are transferred from the customer’s bank to the merchant’s account. Some payment methods combine authorization and capture into a single step.

5. How can merchants improve payment authorization rates?

Merchants can improve authorization rates by implementing strategies such as smart payment routing, enabling network tokenization, applying 3D Secure authentication selectively, retrying soft declines through fallback processors, and monitoring payment performance data. Using payment orchestration platforms can help automate these optimizations and improve approval performance at scale.