Authorization Fee

A credit card authorization fee (which is actually an authorization request fee) is the amount of money that is charged directly to an individual merchant account each time communication is made between credit card processing software (when the sale transaction is processed online, etc.) or point of sale (POS) terminal (when the sale transaction is processed physically in person) and the authorizing network.

This authorization fee covers every type of transaction, including a standard sale transaction, a force post authorization transaction or a complete refund transaction. This fee always applies each time an authorization request is either approved or declined.

The communication that renders an authorization fee can occur either over a traditional dial-up telephone line, a leased line or an Internet IP line that connects with the aforementioned processing software used with web-based sales stores or at physical store terminals.

Authorization Fee Process

During a typical credit card transaction, a customer cardholder pays for his or her purchase and the merchant, in turn, submits the transaction to the acquirer or acquiring bank. The acquirer verifies the credit card number, the transaction type and the amount with the issuer or credit card-issuing bank and reserves that amount of the cardholder’s credit limit for the merchant. An authorization will generate an approval code, which the merchant stores with the transaction. At that point, the authorization fee is identified and charged by a merchant acquirer or bank that provides credit card transaction processing.

The authorization fee charge can be paid by the merchant daily, monthly or within other term lengths or billing cycles set between the merchant and the acquiring bank or independent sales organization (ISO). The fee can often be bundled with other typical fees and paid on a monthly basis.


Authorization Fee Cost

There can be a wide range of authorization fee costs per transaction, depending upon several variables, the most prominent of which are the transaction type and whether or not an independent sales organization has folded additional commissions into their bundled fees.

The average cost in the United States for an authorization is five to ten cents per transaction, but can be as high as twenty-five cents or more. This applies to typical, live, in-person, physical retail transactions in which the credit card that is used for purchase is present. This typically results in a “swiped rate” when the cardholder’s card is physically swiped through a POS device at sale time. The customer cardholder’s physical presence – along with other crucial identification – acts as essentially greater insurance against fraudulent credit card use and thus saves the issuing bank, the merchant, credit card processing company, etc. a great deal of risk.

This cost increases, on the other hand, for remote sales transactions when the risk of credit card fraud also greatly increases – such as those made through mail orders, on websites, or by means of a telephone order. MOTO or mail order/telephone orders are usually separated from internet orders by issuing banks for clarification, though they usually render similar fees. These authorization fees can be as high as thirty cents per transaction.

Transaction Fee

An authorization fee is not to be confused for a transaction fee, which is a separate fee paid for the processed transaction. If a transaction is stopped or declined, an authorization fee still usually remains in place and is fully charged.