The term reservation stands for the reservation of a certain amount of money on a credit card. The term pre-authorization is also frequently used in this area. The reason for this is that the amount is reserved or secured so that it can be authorized later, i.e. debited. The purpose of the reservation is to protect the merchant or another payment recipient from the fact that an item or service is used for a certain period of time, but the credit card’s credit limit is insufficient for the subsequent payment. Reservation can ensure that the amount due later remains on the credit card without already being charged.
Reservation in the offline world
Reservation or pre-authorization usually occurs when using services, such as staying at a hotel or renting a car. Pre-payment is often unusual in these areas, and in some cases the amount due later is also very difficult to estimate in advance. For this reason, many providers use the reservation option to reserve or secure the expected amount on the customer’s credit card. The actual authorization, i.e. debit, only takes place after the end of the stay or return of the vehicle.
Reservation: Security for the service provider
By making a reservation, service providers or even dealers can prevent many cases of fraud and do not have to blindly trust in the honesty of their customer. Often there are unintentional overruns of the credit card’s credit limit – especially when the credit card owner is on vacation. If the hotel bill is only paid at the end of the vacation, it can quickly come as a nasty surprise if the card does not release the desired transaction. To spare both guests or users and service providers or merchants this experience, there is the option of reservation or pre-authorization.
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