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

James Hayward

Content Marketing Lead

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

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

This guide will explore payment authorization in greater depth, including how it works, why transactions are getting declined, and the strategies you can implement to improve your success rates.

In this article:

Looking for a solution to improve authorization rates and streamline your payments? Book a call with our experts at Primer to discover how we can help

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.

But before this authorization is granted, the issuing bank conducts thorough checks. These checks involve verifying if the cardholder has enough funds available (assuming they're using a valid card) and scrutinizing the transaction for any suspicious activity.

It's important to remember that each issuing bank has unique 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.

Payment authorization is of significant importance to all parties involved in a transaction.

Here's a breakdown of why it matters to each party:

Customer: If payment isn't authorized, customers can’t finalize their purchase, leading to frustration and potential transaction abandonment.
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 is paramount for merchants for several reasons:

‍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, even though it's ultimately the issuer's decision. A declined transaction can lead to customer frustration, damage the merchant's reputation, and result in lost future revenue.

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

Why merchants may delay capture following a successful authorization

Some reasons merchants might not request 'capture' immediately include:

Fraud prevention: Merchants can conduct a post-authorization fraud check before capturing the transaction.
Inventory management: Refunds are expensive. It's much easier and economically prudent for merchants to authorize the payment and check they have the necessary inventory to fulfill the order before capturing the transaction.
Flexibility: Delaying 'capture' provides flexibility in case any changes or adjustments to the transaction are needed before finalizing it.

How does card authorization work?

As mentioned, payment authorization is a step towards the overall payment flow that includes several parties and steps.

Let's look at the authorization process:

The customer or merchant initiates the card payment: The payment journey begins when the customer initiates a payment at the checkout or when the merchant uses the debit or credit card details on file to start a merchant-initiated transaction.
An authorization request is sent: The merchant's payment gateway transmits a request to the merchant's acquirer, also known as a payment processor. This request includes all the essential data required to support the transaction. This includes but is not limited to the card information, 3DS data, whether the customer or merchant initiated the transaction, whether it's a recurring payment, and whether the merchant uses a network token.
The processor routes the request: Upon receiving the request, the acquirer forwards it to the card network—such as Visa, Mastercard, or American Express—associated with the credit or debit card used for the transaction.
The card network contacts the issuer: The card network contacts the issuer, who evaluates the request by checking several factors, including whether the card is valid and whether 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, its response includes 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 the merchant's acquirer.
The processor relays the transaction status to the payment gateway: The merchant's payment gateway receives confirmation of the issuer's decision from the acquirer. Subsequently, the merchant informs the customer whether the transaction has been successfully authorized or declined.
Temporary hold and settlement: In the case of approval, a temporary hold is placed on the cardholder's account. This hold remains until the payment is captured, signifying the funds transfer from the customer's bank to the merchant's account.

Including an extra potential step: Authentication

Payment authentication through the 3D Secure protocols is commonplace in online commerce today, especially in Europe and other markets where it's mandated. Typically, authentication occurs before the acquirer routes the request to the card network. However, it can also happen following step five, should the issuer require authentication to authorize the payment.

Learn how payment routing can help you increase your authorization rates

What happens if payment authorization gets declined?

When payment authorization is declined, merchants have two options:

They can either inform the customer that the transaction cannot be completed.
Take additional steps to recover the payment.

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 merchants 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, merchants can confidently take specific steps to recover the transaction.

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

Request the customer to use a different payment method. If the customer's payment fails because of insufficient funds, merchants could ask them to use an alternative payment method, such as Buy Now, Pay Later. This option provides flexibility and increases the chances of a successful transaction.
Initiate a 3D Secure (3DS) challenge when a transaction encounters a soft decline from the issuer. If the issuer suggests that they might approve the payment after the customer successfully authenticates through 3D Secure, the merchant can trigger the 3DS challenge. The decision to do so rests with the issuer, and the customer's experience can vary, ranging from a smooth, frictionless process to receiving an authentication challenge.
Prompt the customer to use a new card: If the payment authorization fails because the customer is using an expired card, merchants could prompt the customer to use a different, valid card for the transaction. This approach helps resolve the specific issue causing the failure.

Five ways to improve payment authorization rates

Issuers will always decline payment authorization for one reason or another—remember, they're just managing their risk and financial exposure. That said, merchants can implement strategies to minimize the chances of authorization failures.

Here are some steps merchants can take to enhance their payment authorization rates:

Enable network tokenization: Tokens, unlike physical cards, do not have expiration dates. Merchants can convert a card-on-file into a network token. This approach increases the likelihood of payment authorization, even if the customer's original card has expired. Network tokenization is particularly beneficial for subscription-based businesses, reducing involuntary churn. Additionally, the enhanced security features of tokens make them valuable tools for merchants to improve their payment authorization rates. Research from Visa found that merchants using network tokens can achieve an average 4% uplift in authorization rates for card-not-present transactions.
Utilize 3D Secure authentication: Implementing 3D Secure authentication reduces the risk of fraud. It instills confidence in issuers when authorizing payments and provides merchants with liability coverage in case of fraud. This added layer of security enhances the chances of successful payment authorization.
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, merchants create an opportunity to recover a transaction following a failed authorization. This redundancy can significantly improve payment authorization rates.
Use payment orchestration: Many merchants are adopting a multi-acquirer strategy to enhance their authorization rates. That's because different payment processors excel in various regions and scenarios, so a payment could be declined by processor one but accepted by processor two. Understanding these subtleties and routing payments to the processor that'll give the payment the best chance of success is crucial, and they can utilize a unified payment infrastructure like Primer to execute this effectively.
Adhere to the scheme rules: Not following the rules outlined by the card schemes leads to a downward trend in authorization rates. Merchants in this situation should work with their payment partners to understand where they're falling foul of the rules and get their MID seen in a better light by the schemes.

Check out this article for more information: 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 we come in. Primer simplifies the process by providing a unified payment infrastructure platform that automates and optimizes these tasks for merchants, enabling them to maximize authorization success without the manual burden.

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

1. Maximize approvals with intelligent transaction routing and fallbacks across multiple acquirers

One key way to improve authorization rates is to route transactions to the best-performing acquirers. However, doing this manually can be complex and resource-intensive. It requires setting up custom logic, managing multiple acquirer integrations, and continuously analyzing performance across regions.

Primer’s smart transaction routing, powered by our Workflow Automation, 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 customer location or transaction value. If, for example, you know in-person card payments have higher authorization rates when routed via 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 can be highly complex: It requires you to establish retry logic, manage PSP integrations, and interpret decline codes—mistakes here could even result in fines from card schemes.

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

These automated fallbacks can lead you to recover a significant amount of revenue. For instance, Banxa, a global leader in crypto infrastructure, achieved a 22% success rate uplift and recovered $7 million in revenue in 2024 using Primer’s native fallback functionality.

Read more about our work with Banxa: Banxa deploys Primer to break down barriers to crypto adoption‍

2. Increase success rates with adaptive 3DS authentication

For many businesses, failed 3D Secure (3DS) checks are a leading cause of failed authorizations and subsequently, lost revenue. Primer helps you avoid this with adaptive 3DS implementation, which balances security and a smooth user experience.

Unlike most payment gateways, which tie 3DS authentication directly to a specific processor (requiring the customer to re-authenticate if the payment fails), Primer handles 3DS before contacting the payment gateway.

Primer uses a data-driven approach to run 3DS when our data set indicates the issuing bank is more likely to accept the payment with 3DS. This way, Primer triggers 3DS optimally, reducing unnecessary steps for customers and improving the chances of successful payments.

This also means that if a payment fails with one processor, it can be retried with another without forcing the customer to go through the authentication process again. This flexibility can increase your authorization rates by minimizing friction for your customers.

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: reducing the chances of failure.

If a payment failure does occur, Primer will automatically retry the transaction through a different processor without requiring the customer to authenticate again.

3. Minimize declines and maintain 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.

This means you can enjoy the benefits—fewer declined payments, smoother transactions, and no more failed payments due to expired cards—without any resource drain on your developers.

A major benefit of network tokenization is its ability to ensure recurring payments continue without disruption, even when card details change. This helps maintain smooth payment flows and reduces the risk of declined payments due to expired or updated card information—keeping your payment authorization rates high.

4. Optimize your payment strategy 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 to improve authorization rates.

Let’s say you notice that transactions routed through a particular acquirer are being declined more frequently in a specific region. Using Primer’s dashboard, you can drill down into the data and identify the problem. By adjusting your routing rules to prioritize a more reliable acquirer in that region, you immediately see improved authorization rates and fewer failed transactions.

Here's a short clip of what the Observability Dashboard looks like:

Primer’s real-time insights empower you to 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, faced the challenge of maintaining high authorization rates in Australia’s fiercely competitive gambling market.

With the 2023 Melbourne Cup—one of the country’s most anticipated betting events—on the horizon, Dabble needed a solution that could scale its payments infrastructure and optimize authorization rates during peak demand.

By integrating with Primer’s Unified Payments Infrastructure, Dabble gained the ability to dynamically route transactions to the best-performing processors. This smart routing was essential for improving authorization rates, as it allowed Dabble to send transactions through processors most likely to approve them: leading to a reduction in failures.

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.

Additionally, Primer allowed Dabble to integrate new payment methods like payment methods proven to increase overall authorization rates without the need for extensive developer resources, giving Dabble the flexibility to maintain a smooth payment experience across a variety of methods. 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 $50,000 USD in revenue through automated fallback workflows
Integrated multiple payment methods and processors seamlessly, boosting approval rates without straining developer resources
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With Primer, Dabble not only improved its overall authorization rates but also ensured a frictionless payment experience for its users, even during peak periods.

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

Use Primer to optimize authorization rates and maximize revenue

Maximizing revenue depends on achieving high payment authorization rates, and 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.

With our unified infrastructure, you’ll not only boost authorization rates but also enhance the overall customer experience—turning payments into a strategic growth lever for your business.

Ready to see how Primer can optimize your payment flows? Book a call with our experts

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Sources:

https://visa-commercial-solutions.visa.com/knowledge-hub/tokenization-a-deep-dive

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