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Thought Leadership – Partial Authorizations

Thought Leadership – Partial Authorizations
Posted: Nov 3, 2017
Comments: 0
Author: Lou Grilli

Another way Credit Unions can keep members happy, reduce declines, and keep cards top-of-wallet.

The ability for an issuer to approve a “Partial Authorization” has been available since 2005, yet most issuers and merchants still don’t take advantage of it. As a result, transactions on debit, prepaid, and gift cards frequently get declined, resulting in frustrated cardholders, and lost sales. 

Simply put, a Partial Authorization occurs when an authorization request for a card presented to a merchant is attempted for the full amount of the transaction and, if there are not enough funds in the debit or prepaid or gift account available to cover the full amount, the authorization is approved for the amount available. This allows the cardholder to use the available amount in the account, and for the merchant to obtain an additional form of payment for the difference. For non-reloadable gift Cards, the issuers will also return a card balance which will be printed on the receipt. Partial Authorization keeps transactions alive without the merchant telling a customer it has been declined and allows the cardholder to pay the remaining amount with another form of payment.

Out of balance doesn't mean out of gas

If you’ve ever used a gas card at an automated gas pump, and the pump shut off before the tank was full, because the gift card as exhausted, you experienced a partial authorization. The pump requested an authorization for some arbitrary large amount, say $75, and the prepaid card issuer for that gas brand returned the amount available in the account, and the gas pump turned off when that amount was spent. 

This same capability can be made available in many other merchant categories, some of which represent higher dollar transactions than fuel purchases: restaurants, department stores, discount and variety stores, grocery and convenience stores, drug stores and pharmacies are just a few of the merchant categories where partial authorizations can reduce declines while retaining cardholder satisfaction.

And the amount of spend that is declined due to cardholders not being aware of their current balance, resulting in an embarrassing decline is surprisingly high. According to Visa, in the U.S., during the first quarter of calendar year (CY) 2016, 35.6 million partial authorization approvals accounted for USD 1.5 billion in sales. In the first quarter of CY 2017, partial authorizations increased to 49.4 million and accounted for approvals worth USD 2.7 billion in sales. Without the use of partial authorizations, these transactions may have been declined due to insufficient funds. Part of a sale is better than no sale.

If there so much to be gained by partial authorizations, why isn’t it always available?

While merchant acquirers and prepaid card vendors are required to support it, it is optional for merchants, and for all other issuers. It does require additional capabilities to be supported. The merchant must code the authorization request to indicate that they support partial authorizations, and the issuer must have the ability to return the requested amount, the available amount, and the balance due. The merchant then would request an additional form of tender (another card, or cash) to complete the transaction. It gets a little more complex if the transaction needs to be reversed. For example, a purchase of an item that resulted in a partial authorization of a card, with a balance paid in cash, commonly called “split tender”, which is subsequently returned, results in a split refund. This is additional bookkeeping and accounting for the merchant. But for the merchant it is worth the additional accounting in exchange for completing more sales, reducing embarrassing declines, keeping the checkout lines short, and keeping customers happy.

Debit and credit issuers stand even more to gain. According to Javelin, nearly 4 in 10 (39%) cardholders who experienced a declined transaction, report that they abandoned their card after being declined. Furthermore, a restaurant server returning to a table with a declined card can cause enough embarrassment to cause a member to change their financial institution. But many debit cardholders do not track their balances, and in some cases are not even aware that there is a hold on the available balance due to a previous pending gas purchase or car rental.

What's in it for credit unions?

Avoiding unnecessary declines, keeping cards top-of-wallet, and keeping members happy is the goal of all credit unions. Partial authorizations is one way to achieve those goals and potentially increase transaction volume.

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Lou Grilli

Lou GrilliLou Grilli

Lou is the Director of Payments Strategy at CSCU and is responsible for providing leadership to the organization for emerging payments and industry trends, as well as managing the product portfolio.

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