What is a Pre-Authorization?

A pre-authorization takes place when a user attempts to add a debit or credit payment method at checkout.

Essentially you are attempting to validate the payment method to determine if it will be possible to charge this card at a future date. The best example would be if a bartender were to ask you to show him or her your wallet to make sure you are good for the drink they are about to serve.

There are multiple flavors of pre-authorization.

The most common pre-authorization is a zero-dollar authorization, where by the card details are shared with the processor and a response is sent back to the merchant.

Depending on your risk appetite, you may try coupling your authorization with pre-auth charge amount, which could be anywhere from $1.00 USD or equivalent up to a much higher amount. This will help indicate whether a person might be able to afford your service after you conclude a free trial period (if you have a free trial).

An additional aspect of the pre-auth that you can consider is the AVS check. The Address Verification Service, which gives the Merchant a response back indicating if the card that is being used matches with ZIP-code information associated with the payment method.

Combining some or all of the aforementioned pre-auth inputs will help you to better understand your customers and can help you better model your ability to capture funds from the user when you attempt to capture funds at a later date.