Authorization hold

Authorization hold (also card authorization, preauthorization, or preauth) is the practice within the banking industry of authorizing electronic transactions done with a debit card or credit card and holding this balance as unavailable either until the merchant clears the transaction (also called settlement), or the hold "falls off." In the case of debit cards, authorization holds can fall off the account (thus rendering the balance available again) anywhere from 1–8 business days after the transaction date depending on the bank's policy; in the case of credit cards, holds may last as long as 30 days, depending on the issuing bank.

Signature-based (non-PIN-based) credit and debit card transactions are a two-step process, consisting of an authorization and a settlement.

When a merchant swipes a customer's credit card, the credit card terminal connects to the merchant's acquirer, or credit card processor, which verifies that the customer's account is valid and that sufficient funds are available to cover the transaction's cost. At this step, the funds are "held" and deducted from the customer's credit limit (or available bank balance, in the case of a debit card) but are not yet transferred to the merchant. At the end of the day, the merchant instructs the credit card machine to submit the finalized transactions to the acquirer in a "batch transfer," which begins the settlement process, where the funds are transferred from the customer's accounts to the merchant's accounts. Contrary to popular belief, this process is not instantaneous: the transaction may not appear on the customer's statement or online account activity for one to two days, and it can take up to three days for funds to be deposited in the merchant's account. The money will be refunded in full if the hold is allowed to expire before the settlement occurs.