Credit Card Authorization Code: Meaning and Purpose

A code that is generated from five or six numbers by an issuing bank, the code being used to validate a credit card and approve it when a purchase or sale is made. Credit card authorization codes are unique to each separate transaction, and they are used to ensure a safe transaction and in order to avoid the occurrence of fraud.

When paying by credit card, the merchant will first authorize the card before the transaction takes place. This process is instant and will clarify whether there are sufficient funds in the bank as well as if the card is stolen or has been cancelled. The authorization code was developed as a way to avoid the generation of receipts and excessive paperwork, while still maintaining an audit trail. Once the code is issued and the card authorized, the funds for the transaction will be captured.

These authorization codes are a shorthand method developed by the payment processors in order to minimize the number of verification steps in the credit card transaction process. They became necessary as credit card transaction number increased, with heavier volumes due to increased credit card acceptance by merchants and usage by consumers. Especially in the case of ecommerce, businesses need a way to rapidly authorize purchases, and it simply isn’t feasible to employ a more cumbersome method to verify the availability of funds in the customer account.

As payment systems have become increasingly complex, they have also become increasingly efficient in being able to verify and authorize transactions on a per purchase basis. This has allowed merchants to become more flexible and quick in their ability to sell their goods and services without having to worry about payment errors. The credit card authorization code is the key to this speed and flexibility.