Why do auths post faster to a credit card than charges?

Say I’ve got a $5000 limit on my credit card. I buy something today for $1000. My available limit will instantly go down to $4000 because of the authorization. But the balance won’t become $1000 until a few days later when the detailed charge comes through. I’ve always just accepted this.

But is there any reason for it? If you have enough info to do the authorization, why can’t they put through the real charge at the same time? Why does it sometimes take days to post the charge?

Here’s a couple of technical reasons, somebody else may be able to cite business reasons.

CC transactions take place in 2 steps, authorization and settlement.

Authorization is quick because the customer is standing in your store or waiting on the phone. Once you’ve performed authorization, the merchant can settle the transaction any time in the next week or so.

Settlement isn’t quick, typically a store will do it each night, but there’s no requirement that they do it that frequently.

One possibility that your merchant is a little lazy about settling transactions. Another is that the middlemen (Merchant Service Providers) are slow about forwarding the settlement batches along to the appropriate bank.

Also, in the visanet protocol, there’s no way to undo an authorization, you can typically call your merchant service provider and tell them to clear it, but the CC terminal can’t do it automatically. The only way to undo a transaction is to postpone settlement indefinately.

In short, authorization is quick because it needs to be quick, while settlement isn’t quick because there’s no need (you can’t spend the money again, and it’s guaranteed to the merchant as long as they get to it eventually).

From a biz POV, it’s good practise to not settle an authorised amount until you have actually dispatched the goods. If you’re out of stock, it’s bad form to bill them when it’s ordered. I run a porn website, for example, and I don’t settle until the customer has activated their account using the link in the email I send them.