What Is an Authorization Code? Definition, Uses, and How It Works

What Is an Authorization Code?

An authorization code is an alphanumeric password that authorizes its user to purchase, sell or transfer items, or to enter information into a security-protected space. An authorization code is typically a sequence of letters, numbers, or a combination of both, that validates a person's identity, approves a transaction or provides access to a secured area.

The most common usage of authorization codes is those sent to a merchant from credit card issuers, to confirm that the customer's credit card has sufficient credit available to authorize the transaction.  

Different platforms may impose specific requirements when asking users to create passwords; for example, they may necessitate the use of a punctuation mark—both capital and lower-case letters—or minimal length thresholds.

Understanding Authorization Codes

Authorization codes are used for any transaction or entry that has restrictions on which users are entitled to access. For example, a credit card authorization code is a five- or six-number code from the issuing bank to the vendor, that authorizes the sale. If the credit card used is counterfeit or if the card is over its predetermined limit, the credit card company will automatically decline the sale. If approved, the authorization code is attached to the credit card transaction. This signals to the merchant that the transaction is legitimate, while also helping to identify the transaction in follow-up examinations, such as the return of merchandise or purchasing disputes.

Authorization codes are transmitted digitally and are used to accelerate credit card processing. If vendors had to call the issuer for a verbal authorization code, in order to complete each and every transaction, it would drastically reduce the speed of commerce.

Key Takeaways

  • Authorization codes are alphanumeric passwords that authorize users to conduct various transactions.
  • In the corporate world, staffers can be given different authorization codes for purchases and expenses that contain specific transaction thresholds.
  • Although authorization codes may be permanently used over the length of an employee's tenure, they more often require routine refreshment.

Authorization Codes in Expense Approvals and Data Security

Authorization codes also play a role in corporate financial controls. The staff may be provided with different authorization codes for purchases and expenses. This lets companies track the purchases and spending in specific areas down to the employee level.

These authorization codes are also given specific transaction thresholds. If an employee is attempting to expense something beyond his or her allowance threshold, it will require an authorization code to be given by a manager, supervisor, or another staffer higher in the organizational hierarchy. In this sense, authorization codes are integral control mechanisms that can be used to help combat employee fraud or the misappropriation of funds.

Authorization codes have also become commonly used in professional workplaces to maintain information security. Access to servers or VPNs can be managed using authorization codes that are tied to unique user IDs, in order to control who is granted to access sensitive databases.

While these authorization codes may be permanently used over the length of an employee's tenure, they are more often periodically refreshed—similar to the refresh of password controls. There are also one-time authorization codes or tokens that only last for the length of a single session.