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SecurityCents Blog

Insights on payment data security, payments news and trends

What are incremental authorizations?

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Incremental authorizations are additional authorizations in a payment lifecycle. For instance, in a hotel when a cardholder decides to stay an extra day, the merchant needs to be able to secure the funds for the stay extension and associate the additional funds needed with the original authorization request. Incrementals have been supported by the processors and the card brands in the lodging space for years. But it’s only recently that they started supporting these transactions in restaurants and bars for tabs and bottle service.

Previously merchants would run additional authorizations for a bar tab, but these were not true incrementals because the authorizations were not linked at the card issuer and appeared to be completely separate charges. This process is not supported by the card brands and may cause a number of issues – primarily that the original authorization is captured for far more than what was originally authorized. Also, the additional authorizations are not closed and this can lead to misuse of authorization fees for the merchant. The other way that merchants tried to solve the issue of getting paid for bar tabs was to send an authorization request for an estimated or fixed amount – i.e. starting a tab with a $50 authorization even if only $20 worth of drinks had been ordered. This is forbidden by the card brands and can cause issues with the cardholder’s open-to-buy due to authorization holds on their account.

Therefore Visa and Mastercard have introduced the concept of incremental authorization for tabs and bottle service.

 What are the benefits?

  • Reduction in misuse of authorization fees from authorizations that are not captured (i.e., when the bar tab has been managed with multiple original authorizations[ ).
  • Reduce cardholder complaints for open-to-buy (e.g., when the bar tab has been managed with multiple original authorizations.)*
  • Reduces merchant risk of not receiving funds when the authorization is done for a lower amount than the capture amount (e.g., when a bar tab is managed with an estimated authorization amount.)

* This does not change the funding on a debit card processed via credit rails – open credit authorizations will create a funds hold on the account until the final transaction is cleared

What if I accept card brands that don’t support incrementals?

Not all processors and card brands support incremental authorizations currently so Merchant Link will convert any incremental authorization requests that are sent from the point of sale (POS) to original authorizations in order not to disrupt the flow of business. This allows the merchant the option of closing out each check and asking for another form of payment or continuing with business as usual. For the original authorizations that are created in place of a true incremental, the charges will not be linked at the issuer and the benefits of true incremental authorizations do not apply.

How do I get it?

Please contact your account manager to get details on availability and enabling this feature for your point of sale system.