DEFINITION of 'Approval Response'

An approval code sent to a point of sale terminal that verifies that a credit or debit card has sufficient funds to make a purchase. Approval responses are part of the transaction authorization process.

BREAKING DOWN 'Approval Response'

When a consumer swipes his or her credit or debit card to make a purchase at a store, a process is put in motion that allows the business to know if the cardholder has sufficient funds available to make the purchase. Once the card is swiped, the financial institution responsible for the card is notified, and the financial institution queries its records about the card to determine the amount of funds available.

If the sufficient funds are available, an electronic approval response is sent. If the cardholder has insufficient funds, the financial institution will send a decline response, and in some cases, the merchant or cardholder may be asked to call the financial institution to provide more information about the purchase or to verify that the card has not been compromised. In some cases, the approval response is not provided electronically, but is instead provided over the phone or via fax machine.

Approval responses are part of the security apparatus that modern credit and debit card issuers use to reduce fraud and ensure that they are not left responsible for purchases made by cardholders with insufficient funds. Most point of sale terminals in developed countries are able to electronically communicate with the computer servers of card issuers.

When a transaction is complete the cardholder is often provided a receipt – either electronically or printed – that provides a record of the transaction. This record contains items such as the merchant name, merchant contact information, day and time of the transaction, transaction amount, and the approval code provided by the card issuer. This receipt can be referenced by either the cardholder or the merchant if something goes wrong with the transaction.

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