Card authorization
The card issuer's approval of a transaction at the moment of purchase, which places a hold on the funds before the final charge is settled.
In short
- Authorization approves and reserves the amount; settlement actually moves the money.
- The authorized amount can differ from the final charge, for tips, fuel, hotels and car rentals.
- A pending transaction in a card feed is usually an authorization, not a final charge.
A card authorization is the first step of a card payment. When a card is used, the merchant's payment provider sends a request through the card network to the issuing bank. The issuer checks that the card is valid, the account has enough available credit or funds, and the transaction doesn't look fraudulent, then approves or declines it, usually in under two seconds.
Authorization versus settlement
An approval puts a hold on the amount, reducing the cardholder's available credit, but money hasn't moved yet. Later, often at the end of the day, the merchant submits the transaction for capture and settlement, and only then is the account charged and the merchant paid.
When amounts differ
- Restaurants: the bill is authorized before the tip is added; the settled amount includes the tip.
- Fuel: pumps authorize a fixed amount and settle for the fuel actually pumped.
- Hotels and car rentals: a deposit is authorized at check-in and replaced by the final bill at checkout.
- Online orders: items authorized together may be settled separately as they ship.
Why finance teams care
Card feeds often show pending authorizations first and the settled transaction days later, sometimes for a different amount or under a different date. Matching receipts to authorizations rather than settled charges creates mismatches, and holds that are never settled eventually expire and disappear from the feed.
Worked example
A hotel stay
At check-in, a hotel authorizes $600 on an employee's company card for a three-night stay plus incidentals. The feed shows $600 pending. At checkout, the final bill is $527.85. The hotel settles that amount, the $600 hold is released, and the feed shows one settled charge of $527.85, which is what the receipt should be matched to.