Pre-authorization reserves funds on a cardholder's account without transferring money, while capture completes the transaction by actually moving the reserved funds to the merchant. This two-phase process typically allows 5-7 days between authorization and capture before the hold expires.
Why It Matters
Separating authorization from capture reduces payment failures by 15-25% and enables inventory management before charging customers. Failed captures after authorization cost merchants an average of $2.50 per declined transaction in processing fees plus lost sales. The two-phase model allows merchants to validate orders, check inventory, and prevent overcharging while maintaining customer trust through transparent billing practices.
How It Works in Practice
- 1Authorize funds by sending card details and transaction amount to the payment processor for approval
- 2Reserve the specified amount on the customer's available credit or account balance for 5-7 days
- 3Validate the order by checking inventory availability, fraud scores, and shipping addresses
- 4Capture the authorized amount by submitting a settlement request to actually transfer funds
- 5Process partial captures for split shipments or cancelled items within the original authorization amount
Common Pitfalls
Authorization holds expire after 5-7 days depending on card network rules, requiring re-authorization and potentially failing if customer's balance changed
PCI DSS compliance requires secure storage of authorization codes and transaction tokens between auth and capture phases
Partial captures exceeding the original authorization amount trigger additional authorization attempts, increasing decline rates by 8-12%
Key Metrics
| Metric | Target | Formula |
|---|---|---|
| Authorization Success Rate | >97% | Successful authorizations / Total authorization attempts × 100 |
| Capture Rate | >95% | Successful captures / Total capture attempts × 100 |
| Auth-to-Capture Time | <48h | Average time between authorization timestamp and capture timestamp |