Some of the most commonly asked questions from customers involve the billing of their credit or debit card. Customers will ask why their card was “charged” if their order was cancelled, why there are two “charges” on their account, or why we have “taken the money” if the shoes weren’t shipped.
These questions and similar inquiries are the result of a lack of education about credit and debit cards. Most consumers (and even quite a few bank representatives!) don’t know the difference between an “authorization” and “charge” and because card issuer have yet make to make this information widely available., Sneakerhead Academy has created this informative article using Sneakerhead.com as case study, in order to teach our customers about shopping with us and with other Internet merchants.
A credit card is a card that lets a customer make purchases up to a pre-determined limit called the credit limit. When purchases are made, and the card is charged, the amount of each purchase is added to the total spent up to the credit limit amount. The money is transferred into the merchant’s account when the card is charged. A debit card is a payment card whose funds are withdrawn directly from the checking account until the account balance reaches zero. The funds are reserved and subtracted from the checking account balance at the time of purchase and later transferred to the merchant’s account.
When you, the customer, make a purchase with your card, the merchant sends an electronic request for an authorization of the card. The key word here is "Authorization.” An authorization is not a charge or sale, meaning that at that point, none of your money has been transferred to the merchant. An authorization only means that the merchant is checking to see if there is enough money available to cover the purchase, checking the address against the records of the card issuer to avoid identity theft and credit card fraud, and asking your card company or bank to reserve the money it will take to pay for your purchase. The money is reserved until the order is processed and ready to be shipped at which time the merchant will send another electronic request to your card company or bank for the funds to be transferred from your account to the merchant’s account. This second request is called a capture and when this happens, the money is removed from your account or credit limit.
If the merchant is unable to process the order because of a bad address or an order is cancelled, the authorization or hold on the money will stay on the account. The amount of time that a card company will hold the funds varies so it is best to contact the card company if you have questions.
Gas stations authorize your card before your pump your gas. usually the screen at the pump will say, "Authorizing" or "Authorization in progress." The card will be authorized for a set amount larger than what you will probably spend to ensure that you have enough to cover the purchase. Once you have pumped the gas, the card will then be charged for the actual price of the gas you used. If the card is authorized for $50 and you only buy $25 worth of gas, then the card will be charged for $25 and the $50 in reserved funds will be returned to your account. Customers don’t see this process on their statements however. Usually, they only see the $25 dollar charge because this authorization only holds for a short period of time.
