What Is the Authorization Date?

The authorization date is the date at which a credit or debit card transaction is approved by the credit card issuer. The authorization date is one of the critical stages in the process of authorizing and rendering electronic payments.

Key Takeaways

  • The authorization date is the date at which a credit or debit card transaction is approved.
  • The authorization date is one of the critical stages in the process of authorizing and rendering electronic payments.
  • Today, payments are authorized or declined within seconds of presenting the payment card.

How the Authorization Date Works

Although credit and debit card transactions have become a routine part of everyday life, these simple payments are made possible by a sophisticated system of computer systems and protocols. 

One of the most important stages in this process consists of obtaining authorization for the transaction. When a customer seeks to purchase an item using a card, the vendor’s point of sale (POS) system will automatically transit the details of that transaction to a financial institution called a merchant bank. These companies, which are also known as “acquiring banks,” serve as the bridge between individual businesses that wish to accept payment by cards, and large payment networks such as those operated by Visa (V) and MasterCard (MA).

Once the merchant bank has confirmed that the transaction is legitimate, its computer systems will relay its authorization back to the POS system, causing the transaction to be approved. If the merchant bank determines that the transaction cannot be authorized, either due to insufficient funds or for another cause—such as the card being marked for fraud—then it will refuse authorization and cause the transaction to be declined.

In order to make this determination, the merchant bank must request information from the credit card issuer of the person seeking to make the purchase. This company, which is often a bank such as J.P. Morgan Chase (JPM), is responsible for accessing the customer’s credit and transaction history in order to determine whether the transaction should be approved. Assuming the transaction is approved, the authorization date of the transaction would be the same date at which the customer presented their card for payment.

Although the underlying processes are quite complex, the speed of today’s computer systems allows transactions to be authorized or declined within seconds of the card being presented by the customer.

Example of the Authorization Date

Kyle is attempting to purchase a coffee from his neighborhood cafe. He attempts to pay for it using his credit card. After inserting the card to the POS terminal and entering his personal identification number (PIN), Kyle waits for the terminal to determine whether the transaction has been approved.

In the background, many systems are interacting to make this transaction possible. The POS terminal first communicates with the merchant bank, which in turn checks with Kyle’s credit card issuer to determine whether he has adequate funds available. Unfortunately for Kyle, the issuer determines that he does not have sufficient credit to complete the transaction, causing the authorization to be declined.

In response, Kyle tries a debit card instead. This time, the transaction is authorized. Its authorization date is therefore the same date at which Kyle made the purchase.