Pre-Authorisation
What Is a Pre-Authorisation? Definition and How It Works
Definition
A pre-authorisation is a temporary hold placed on a cardholder's available funds that confirms the card is valid and funds exist, without immediately capturing or moving those funds, used in hospitality, travel, and variable-amount payment contexts.
How it works
A pre-authorisation (pre-auth) is a two-step transaction flow where the authorisation and capture are deliberately separated. In step one the merchant submits an authorisation request for an estimated or confirmed amount. The issuer approves the hold and reduces the cardholder's available credit or debit balance by that amount. The funds are reserved at this point but not yet transferred.
Step two (capture) occurs when the actual charge amount is confirmed and the merchant submits a capture instruction. The capture amount may differ from the original pre-auth amount within scheme-permitted tolerances, typically up to 15-20% above the original for certain merchant category codes. The issuer then initiates the transfer of funds through the clearing and settlement process.
Pre-auth is standard in specific merchant categories: hotels hold an estimated stay amount at check-in and capture the actual bill at checkout; car rental companies hold a damage deposit at rental pickup; fuel stations place a nominal hold before dispensing; and high-value retailers hold funds during a fraud review period before releasing goods.
Incremental authorisation is a related mechanism used when the final amount is unknown or grows over time, for example, a hotel adding room service charges to an existing pre-auth. Incremental auth adds to the existing hold rather than requiring a new pre-auth.
Pre-auth holds expire if not captured within the scheme-mandated hold period: typically 7 days for Visa consumer transactions and up to 30 days for some Mastercard categories. An expired pre-auth that is later captured may downgrade to a higher interchange category or be declined by the issuer.
Why it matters
Hotels and car rental companies use pre-auth to ensure funds availability before providing the service, reducing the risk of a declined payment at checkout. Pre-auths that expire before capture generate authorisation re-requests, additional fees, and potential interchange downgrades; merchants must monitor active pre-auths and capture within scheme timelines. Incremental authorisation allows hospitality and subscription merchants to add to an existing hold without releasing and re-authorising, reducing friction and re-auth risk. Releasing an unused pre-auth (reversal or void) promptly is important for consumer experience; an unreleased hold reduces the cardholder's available funds even after the transaction is cancelled. Pre-auth followed by capture within scheme timelines qualifies for card-present or in-person interchange rates; delayed capture beyond the hold period may result in a higher CNP interchange rate.
With PXP
PXP supports full pre-authorisation and incremental authorisation flows, enabling merchants in hospitality, travel, and variable-amount retail to place holds, increment charges, and capture final amounts within scheme-compliant timelines. PXP's platform handles hold expiry monitoring and capture timing to prevent interchange downgrade.
Frequently asked questions
What is the difference between a pre-authorisation and a standard authorisation?
A standard authorisation is followed immediately by capture, the merchant authorises and intends to capture the same amount in a single transaction flow. A pre-authorisation explicitly separates the hold from the capture, allowing time between the two steps. The hold amount at pre-auth may differ from the final capture amount. Pre-auth is used when the final transaction amount is unknown at the time of authorisation, as in hotel check-in, car rental pickup, or fuel dispensing.
What happens if a pre-auth hold expires before capture?
If a pre-auth is not captured within the scheme-mandated hold period (typically 7 days for Visa consumer, up to 30 days for some Mastercard categories), the issuer may release the hold automatically. If the merchant subsequently submits a capture against an expired pre-auth, the issuer may decline it or downgrade the transaction to a higher-cost interchange category. Merchants must track hold expiry dates and either capture or explicitly void pre-auths before expiry.
Can the capture amount differ from the pre-auth amount?
Yes, within limits. Card scheme rules allow capture amounts to differ from the pre-auth amount within certain tolerances. For most merchant categories the capture can be up to 15% above the original pre-auth without requiring a new authorisation. Some categories (supermarkets, fuel) have different tolerances. Captures significantly above the pre-auth amount may be declined or flagged by the issuer. Merchants should understand the scheme rules for their MCC before implementing variable-amount capture flows.
How does incremental authorisation work for hotel stays?
At check-in a hotel places an initial pre-auth for the estimated stay cost. As the guest incurs additional charges (room service, minibar, spa), the hotel submits incremental auth requests to add to the existing hold rather than creating new pre-auths. Each incremental auth increases the total reserved amount. At checkout the hotel captures the full final amount against the accumulated hold. Incremental auth requires specific scheme support and the merchant's acquiring agreement must allow incremental authorisation for the relevant MCC.
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