A Pre-Authentication allows you to run a $1.00 authorization on a card in order to verify that the address on file for the card matches the address that customer has entered (This uses the Address Verification System, or AVS). If AVS passes, then the card is processed for the total dollar amount.
Typically, a merchant will have high dollar transaction amount (for example, an attorney charging $1,000). Upon running a transaction, the customer's card may have approved the authorization, but then declined due to security settings because of an AVS address mismatch. This would reduce the customer's available credit card spending limit by $1,000 even though the merchant would not collect the funds. If the merchant tried the charge again with a new billing address, a second pending charge would appear on the customer's credit card. This would cause confusion for customers and merchants, reducing the customer's credit card limits by $2,000 (instead of a single $1,000 charge).
To avoid this, you can enable PreAuthorizations. This will charge a $1.00 test transaction to "see if the card works" and ensure that address matches; if it succeeds, it will automatically charge the originally requested high dollar amount (i.e. $1,000). If the $1.00 "PreAuthorization" fails, the merchant will avoid tying up the customer's available credit card funds.
Note, the customer will see two charges for every transaction run with PreAuthorizations turned on: a $1.00 test transaction, followed by the real transaction amount if the $1.00 test succeeds. The $1.00 temporary test will not be collected; it will automatically "drop off" the customer's card within 1 to 3 business days. Only the desired transaction amount will be collected. PreAuthorizations will cost you as the merchant 3 authorization fees plus the regular processing rates (but it may avoid customer frustration).
PayJunction now recommends reversals and AVS bypass over PreAuthorizations; use PreAuthorizations as a last resort.
WARNING: If you enable pre-authorizations you will be charged 2 authorization fees for every transaction. Processing fees are also charged for pre-authorizations.
To enable PreAuthorizations:
- Click on "More" >>> "Settings Overview" under "Settings".
- Click the white "Update Settings" button.
- Check the box labeled "PreAuthorize".
- Click the "Save" button.