Pre-authorization is designed to reduce the merchant's risk by blocking the card's limit for a certain period.
Because a credit card has a defined limit, a certain amount can be blocked against that limit. However, ATM cards or prepaid debit cards have no limit that can be blocked, so pre-authorization is not suitable for debit-type cards.
In a pre-authorization transaction made through a POS, the POS may check the card type and reject the transaction without asking the issuer's decision, or, acting as the acquiring bank's POS, it may take no action at all and forward the transaction to the issuer, with the outcome depending on the issuer's decision. Which option is chosen is a business decision of the POS's bank.
Completing a pre-authorization
Pre-authorization only blocks the amount; the money does not pass to the merchant. The merchant later performs a final sale (capture) transaction, and this transaction reflects the actual amount on the cardholder's account.
If capture is not performed, the block is released after a certain period. This method is common in sectors such as hotels and car rentals, where the final amount is not known in advance.
The point cardholders should pay attention to is that the blocked amount reduces the available limit.
