The 2025 Guide to Payment Authorization

Your payment authorization success rate has serious consequences for your business. 

These can be benefits when your authorization rate is optimized, such as higher revenue and lower overall fraud risk, or they can be harmful when your rate falls too low and begins raking in extra costs and fees. 

Improving your authorization rate requires a thorough understanding of the payment authorization process. Payment failures typically stem from a few common issues and can often be addressed semi-easily with the right tools and approach. 

What is payment authorization (and is it the same as card authorization)?

Payment authorization is the process of validating a transaction with a customer’s issuing bank. 

While card authorization refers to the process of validating a transaction made with a credit or debit card, payment authorization encompasses many different authorization processes beyond traditional debit and credit card authorizations alone. Though card authorization may be one of the most common examples of payment authorization, the latter term has evolved to include a broader range of payment methods and processes, such as biometric authentication measures used to validate payments made with digital wallets (i.e. Apple Pay and Face ID).  

Alternative payment methods have risen in popularity greatly over recent years, with options like digital wallets, bank transfers, instant payments, and BNPLs showing prominent appeal in global markets. Digital wallets are particularly notable thanks to the widespread adoption of wallets like Google Pay, Apple Pay, and PayPal, with usage expected to exceed 5.2 billion globally by 2026.

In most contexts today, “payment authorization” does still refer to card authorization. However, it’s important to keep these other use cases in mind as demand for new and more modern payments continues to increase among consumers. 

How does payment authorization work?

When a payment is initiated, either by the customer or the merchant, a request is sent via a payment processor to the relevant entities for approval and verification. If the bank gives the go-ahead, the merchant is notified of the approval and the funds are released from the customer’s bank account. 

Before this authorization can occur, however, the payment processor and issuing bank are likely to impose a variety of identity and account checks. These checks can range from simply verifying the customer has enough funds in their account to monitor high-risk purchases for suspicious behavior. 

The exact criteria against which a payment is measured depends on the region. Cross-border transactions often face greater scrutiny during the authorization process due to the complexities of managing compliance requirements from multiple different regions of the world. 

Three key steps make up the payment authorization process: 

1. A payment is initiated

Payment authorization begins the moment a payment is initiated by either the customer or the merchant. 

Customers commonly initiate purchases via online checkout interfaces that connect directly to a payment gateway of your choice. For in-person payments, the customer may use a card at a POS terminal or opt for contactless payments if your store offers them as a payment method. Fraud tools built into your payment gateway can run initial checks to assess the risk of a specific transaction. 

In the case of merchant-initiated payments, such as automated subscriptions, you’ll need the right tools and technologies to safely store and use your customers’ payment credentials.

2. Your payment gateway requests authorization from the issuing bank

After a payment has been initiated, a request is sent to the customer’s issuing bank to verify the and approve the transaction. The issuing bank will look at many factors in its system to provide this validation, including the customer’s account balances and billing information. 

3. The bank sends back an approval or a denial 

Once the bank verifies that the payment data provided matches with their customer records, the bank sends an approval notification to the merchant. In many cases, a sale can be completed near-instantly once this final approval has been received. If the issuing bank sends back a denial, this indicates a problem with the transaction that must be resolved before the payment can be completed. 

What happens when payment authorization fails? 

You’ve just received a notification that a transaction originating from your system has failed. Now, what?

Payment failures are inevitable, but also a tremendous headache if you don’t have the tools to manage them swiftly. Not all is lost as soon as you receive the decline notice, however—you can still take measures to try and recover the transaction and revenue before notifying the customer.  

Your ability to retry a transaction will depend on the decline code you receive. Certain problems cannot be resolved with payment rerouting, such as if a card has expired or if the wrong credentials were entered. There are other issues that can be solved easily with a retry mechanism, such as using a secondary payment gateway if the first one declines due to risk-averse fraud controls. 

If you are struggling with payment declines, the following three steps can help you begin to address the problem and identify the root challenge: 

1. Assess your current payment system and its rerouting capabilities. Ideally, you want a payment platform that can support multiple different payment methods and payment service providers (PSPs) to give you maximum customization and operational flexibility. 
2. Enable more payment methods to give your customers greater options at checkout. In some cases, simply having a different payment option for your customer to try if their first choice fails can make the difference between a successful sale and an abandoned cart. 
3. Modernize your approach to storing payment data. If you have yet to implement solutions like tokenization and vaulting, now is a great time to add new enhancements to your payment strategy. With these tools, you can simplify payment security and set yourself up for success against soft declines due to outdated payment information. 

How to increase your authorization rates 

A flawless authorization rate is not a reality for any merchant or marketplace. Yet, you can achieve an impressively high rate by focusing your efforts on payment optimization. 

An exceptional authorization rate starts with advanced monitoring. You need the ability to track each of your transactions and take note of where common issues or pain points arise. With this information, you can more precisely tackle the challenges keeping your payment system from its true revenue potential.

Even a small improvement in your rate can make a substantial difference in the amount of revenue recovered from payments that initially fail or are at risk of failing. 

Below, you’ll find our recommended set of best practices for increasing your authorization rates: 

• Optimize with open payments: Open payment platforms offer you the freedom to build a payment strategy tailored to your exact needs. Stemming from the idea of a more connected financial ecosystem, open payment technologies allow you to integrate all of your different gateways, payment methods, and tools of choice into your payment environment.
• Use network tokenization: Network tokens are specific to a merchant and payment method pair, meaning these tokens can only be used within your payment environment. This adds a heightened degree of security that keeps customer payment data safe at all stages of a transaction and can significantly decrease the burden of compliance for your business. 
• Enable an account updater solution: Many payment providers today offer account updater solutions or features that help keep your stored payment data up-to-date and evergreen. With an account updater, whenever your customers’ card information expires or is changed, your tokens are automatically updated via the card networks themselves. 
• Stay on top of fraud prevention: The higher your decline and chargeback rates, the more costly your transactions will become. Advanced fraud prevention solutions can help you keep track of your riskiest transactions and maximize revenue that may otherwise be lost. 
• Expand your payment options: Enabling alternative payment methods like digital wallets and bank transfers can be a critical step toward expanding into new territories and regions. Giving customers more freedom of choice in how they pay can build loyalty and encourage spending. 

Common reasons why payment authorization can fail

A payment failure can be discouraging, especially if those failures begin piling up. 

While dealing with declines can be frustrating, it doesn’t have to turn into a lasting revenue drain. Rerouting capabilities have made it possible to keep transactions flowing even when initial roadblocks are discovered in the form of a payment failure. Oftentimes, all it takes is retrying a payment once with a different gateway to turn that failure into a success.  

If you have a poor authorization rate and want to improve it, addressing the root cause of your low rate is the best first step. You need to perform an internal audit of your payment process and its potential risks based on your specific industry and region.

To help you get started, we’ve compiled a list of several of the most common causes of payment failures:

• Inaccurate or outdated card information: First-time customers or customers who choose not to have their payment data saved long-term must enter their information at checkout. If this information is entered incorrectly, it can result in an automatic payment failure. Likewise, an expired card can also result in a decline. Payment processors and banks often use decline codes that communicate when a failure occurs due to inaccurate payment information, which merchants can then use to prompt customers to correct the information at checkout.  
• Insufficient funds: In some cases, a customer may not have sufficient funds in their account to cover a purchase. While this typically remains a problem for the customer to resolve, you can add more flexibility to your checkout process with additional payment method options. Customers may hold funds in alternative accounts, like digital wallets, rather than traditional bank accounts. Enabling these payment methods ensures customers have maximum access to their money. 
• Fraud prevention mechanisms: Each payment gateway or PSP has its own fraud prevention mechanisms and risk scoring system. While one gateway may deem a payment risky due to the geographic location, a gateway localized to that area may not. Implementing a multi-provider gateway strategy can be the key to overcoming many fraud-related decline challenges. 

What are payment authorization and transaction fees?

Each time a merchant processes a card payment, a variety of fees are charged to the merchant.

Transaction fees are charges incurred for processing payments and typically include a few distinct fees:

• Interchange fees (paid to the card-issuing bank)
• Assessment fees (paid to card networks)
• Payment processor fees

These fees vary based on factors like transaction type, payment method, and merchant category. For instance, online transactions may incur higher fees due to increased fraud risk.

How this relates to payment authorization once again comes back to your authorization rate. A low authorization rate can earn you a higher risk rating with banks and PSPs, resulting in higher fees for each transaction you process through your system. Optimizing your payment processing setup can help you strike the ideal balance between revenue and operational costs.

How Spreedly’s Open Payments Platform can help

Tokenization, the process of replacing sensitive data with a meaningless token, is a core component of any modern approach to payments. Kept in secure vaults when not in use, tokens can enable faster transactions and greatly reduced instances of declines and failures. 

At Spreedly, our Network Tokenization solution allows our clients to transact more freely with their chosen mix of gateways. Our tokens offer several benefits, such as:

• Minimized risk of data breaches thanks to the advanced confidentiality tokenization offers
• Reduced compliance burden via our PCI Level-1 compliant status
• Increased cost savings and revenue from recovered transactions and fee optimization
• Enhanced customer trust in your payment system

Spreedly also recently launched Optimize, a product designed to intelligently route and retry transactions for optimal authorization success and revenue recovery.  

Try the Spreedly demo now to experience open payments firsthand. 

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