What Is a Credit Card Authorization Key?

A credit card authorization key is a code that is used to process credit card transactions. The code is not visible to customers or merchants, but is instead transmitted in encrypted form between the merchant’s point of sale (POS) system and their payment processing provider.

The terms "key" and "code" are often used interchangeably because processing a credit card transaction securely involves using a data encryption methodology called "PKI," or Public Key Infrastructure."

Once the payment processor has confirmed that the customer has sufficient funds to complete the transaction, the credit card authorization key is sent back to the POS system, causing the credit card transaction to be approved.

Key Takeaways

  • A credit card authorization key is a code that is required to finalize a credit card transaction.
  • It is transmitted automatically between the retailer’s POS system and the cardholder’s issuing bank.
  • The credit card authorization key serves as proof that the transaction took place and was authorized, thereby helping to prevent fraud.

How Credit Card Authorization Keys Work

The credit card authorization key is just one of many components involved in processing credit card transactions. Although the actual mechanics of this process are quite complex, today’s computer systems allow credit card transactions to be processed in just a matter of seconds.

Typically, credit card authorization keys are generated based on a combination of the credit card number and details from the transaction being processed. These details often include the amount being charged, as well as the time at which the transaction is occurring. Once this information is collected by the POS system, that data is encrypted and transmitted through the payment network for confirmation by the bank that issued the customer’s credit card.

Once they have received this information, the issuing bank verifies whether the customer has sufficient funds to complete the transaction. At the same time, they will check whether the credit card in question has been flagged for fraud, theft, or other such purposes. If no such issues are present, and if the required funds are available, the issuing bank returns an encrypted authorization key which is decrypted by the POS terminal. This in turn causes the transaction to be approved.

Real World Example of a Credit Card Authorization Key

Emma is the owner of a small retail store. To help make her store as convenient as possible for customers, Emma uses a POS terminal that accepts all major credit and debit cards. She also maintains an online storefront through which customers can make purchases online and receive delivery directly to their homes.

In both cases, Emma relies on a payment processing system that uses credit card authorization keys to accept or decline the transactions. When a customer pays with their credit card at the physical store, the POS machine transmits the card number and relevant transaction details to the cardholder’s issuing bank, and receives either an approval or a rejection of the transaction. 

When customers order online, the customer must also submit their card verification value code (CVC), which is typically printed near the signature line on the back of their credit card. This code is transmitted to the card issuer, along with other details, in order to obtain a credit card authorization key and finalize the purchase.