Understanding pre-authorized payments: How they work and why they matter

In 2025, the total transaction value of the digital payments market is forecast to hit $20.09 trillion, with projections soaring to $38.07 trillion by 2030 according to PaySpace Magazine. As part of this growth many sectors have a need to secure transactions before funds are captured and pre-authorized payments are a cornerstone of that process. Unfortunately many businesses struggle with failed holds, expired authorizations, and customer dissatisfaction caused by unclear fund freezes.

If you're a CFO, Head of Payments, or Product Manager, understanding how pre-authorized transactions work-and how to manage them efficiently-can directly improve your revenue protection, customer experience, and compliance posture.

What follows is a practical guide to pre-authorized payments: what they are, how they work, when to use them, and how to manage them properly.

What is a pre-authorized payment?

A pre-authorized payment is where a merchant requests temporary approval from the issuer to hold a specific amount on a customer's payment method before completing the final charge. This pre-authorization confirms that funds are available, but the actual deduction only happens when the merchant finalizes the payment.

It is different from a final payment, where payment is immediately processed and settled. In a pre-authorized transaction, the hold is provisional. If the merchant captures the transaction, the funds are withdrawn. If not, the hold eventually expires and the funds become available again.

Pre-authorizations are most commonly used with credit cards, especially in card-not-present environments where final amounts may vary.

Common terms to know

• Authorization hold: A temporary freeze on funds in a customer's account.
  
  
• Capture: The act of finalizing a transaction and withdrawing the funds.
  
  
• Reversal: The cancellation of an authorization, releasing the held amount.
  
  
• Incremental authorization: A request for a higher hold amount if needed.
  
  
• Partial reversal: Releasing part of the original hold if the full amount isn’t used.
  
  

How does a pre-authorized payment work?

The process begins with a merchant submitting an authorization request through their payment provider. The card issuer confirms fund availability and places a hold on the amount. This reduces the customer’s available balance, though the money hasn’t yet been transferred.

If the transaction proceeds, the merchant submits a capture request. If the purchase doesn’t go ahead, the hold is either reversed or expires. Throughout this, the customer's current balance remains unchanged, but their available balance reflects the held amount.

In some cases, merchants may need to adjust the hold. For example, a hotel might increase the authorization to cover minibar charges, or reverse part of the hold if the customer checks out early.

How long do pre-authorized transactions last?

The duration of a hold varies by card network and merchant category. Typical hold times:

• Visa: 7 days for most transactions
  
  
• Mastercard: Up to 30 days for hotels and rentals
  
  
• Amex: 7 to 10 days, but depends on sector
  
  

If a merchant doesn’t capture the payment within the hold window, the authorization expires. The funds are released back to the customer, but this process can take a few business days.

For merchants, an expired hold can mean lost revenue. For customers, it can be confusing if the held amount lingers on their statement without being resolved.

Common use cases for pre-authorized payments

Pre-authorized payments are commonly used in situations where the final transaction amount is unknown or where services are rendered after the initial booking or order. Here are some typical use cases:

Benefits of pre-authorized payments

Pre-authorized payments aren't just about convenience, they solve specific problems for both merchants and customers. By temporarily holding funds, they create a buffer that protects against disputes, payment failures, and unexpected costs. Here's how they help both sides of the transaction:

For merchants

• Confirms fund availability: Ensures the customer has sufficient funds before fulfilling the order or service.
  
  
• Reduces fraud and chargebacks: Helps validate legitimate intent to pay, lowering the risk of disputes.
  
  
• Supports flexible capture: Allows merchants to adjust the final charge amount (e.g., tips, extra services) before capturing.
  
  
• Minimizes revenue loss: Prevents failed payments by securing funds in advance.
  
  
• Improves financial forecasting: Provides better visibility into expected revenue and settlement timing.
  
  
• Supports multi-use flows: Ideal for services that span days or have delayed fulfillment, such as rentals or trials.
  
  

For customers

• Greater transparency: Customers see a hold placed before funds are deducted, making charges feel more predictable.
  
  
• Delayed commitment: Funds aren’t withdrawn immediately, giving more flexibility to review or modify purchases.
  
  
• Improved experience: Reduces billing surprises, particularly in travel, hospitality, and fuel use cases.
  
  
• Reinforces trust: Seeing pre-authorization used responsibly increases confidence in the merchant.
  
  

Challenges and common pitfalls

While pre-authorized payments offer many advantages, they come with their own set of operational and communication risks. If not properly managed, these can result in lost revenue, frustrated customers, and unnecessary disputes.

A common issue is customer confusion, especially when a hold appears on their account without a clear explanation or final charge. This is often worsened when merchants fail to clearly communicate how and why a hold was placed.

Another challenge is the risk of failed captures. If the merchant doesn't act within the allotted hold period, the authorization expires, and the funds are released. That can mean missed revenue, especially in industries where payments aren't finalized immediately.

Over-authorization can also be a pain point. When merchants hold more than necessary, it ties up the customer’s funds and may cause frustration. Similarly, neglected reversals (when unused funds aren’t released promptly) can impact customer trust.

Card networks, issuers, and authorization rules

Each network sets different pre-authorization rules. Visa and Mastercard have specific guidelines for hold duration, use of incremental authorizations, and merchant category codes (MCCs). For example, gas stations have shorter hold periods due to frequent usage, while hotels are allowed extended windows.

Merchants operating internationally must also deal with different issuer behaviors, especially in markets where pre-authorization usage is less common or regulated differently.

Banking regulations and issuer-specific protocols often influence how long holds last and whether incremental authorizations are allowed.

Pre-authorizations in online vs. in-store environments

In-store (card-present) pre-auths are often used in hospitality, fuel, and retail. Online (card-not-present) pre-auths are common in subscriptions, reservations, and digital marketplaces.

Online pre-authorizations may require stronger authentication due to risk levels, and benefit from orchestration systems that manage retries, expiry windows, and compliance checks.

Best practices for managing pre-authorized transactions

To manage pre-authorized transactions successfully, businesses need to focus on accuracy, timing, communication, and system flexibility. The following practices can help improve both customer satisfaction and operational efficiency:

• Set realistic authorization amounts: Avoid placing unnecessarily large holds, which can frustrate customers or lead to declined transactions.
  
  
• Provide clear customer communication: Let customers know upfront when a hold will be placed, for how much, and when the actual charge will occur. Include this in confirmation emails, receipts, and on payment pages.
  
  
• Track expiration windows: Each card network has defined hold durations. Monitor these windows closely to avoid losing the authorization before you can capture it.
  
  
• Use incremental and partial captures wisely: If the final amount changes (e.g. extended hotel stays or added services), use incremental authorization to top up the hold instead of starting a new transaction.
  
  
• Release unused funds promptly: If the held amount exceeds the final charge, issue a partial reversal as soon as possible to free up the remaining balance for the customer.
  
  
• Automate where possible: Use your payment provider's tools to handle capture, reversal, and expiry tracking programmatically.
  
  
• Reconcile regularly: Keep detailed records of holds, captures, and reversals to ensure accurate accounting and minimize disputes.
  
  

Antom supports automated workflows and real-time orchestration for pre-authorizations, both online and in-store. With features like Revenue Booster, you can retry failed captures intelligently and reduce the need for manual intervention.

Speak to our team for a tailored implementation strategy that suits your business model and improves both your revenue protection and customer experience.