Need Help? Chat icon | Call - 1 888 414 7111
Merchant logo
Home > News and Blog

March 28, 2024
by David Goodale

How To Use Pre-Authorizations To Reduce and Eliminate Fraud?

(Slightly edited from video transcript for greater readability)

Key Takeaways

A credit card pre-authorization, also known as a "pre-auth" is a temporary hold placed on a credit card by a merchant. It locks up the funds for 5 days during which time the merchant is guaranteed to be able to capture those funds if they choose to.
Using pre-authorizations to reduce fraud
Pre-authorizations give the merchant a window of time to evaluate the order and decide if they want to capture it. Until a pre-auth is captured you haven't taken the money and you can't get a chargeback.
Need help with this topic? Or a rate quote?
Whether its questions about this article, or you want to see how we can lower your costs. Don't hesitate to contact us.

Hello, David here at This is going to be a short video. Today I’m going to talk about how to use pre-authorizations or verify requests to reduce and eliminate fraud. Stay tuned we'll dig in in one second.

Pre-authorizations can help reduce chargebacks


This video is for merchants who are getting chargebacks because of fraud, or taking payments for orders that they ultimately didn't want to fulfill. A surprisingly large number of merchants just sell stuff. You might have a thousand-dollar product. I will just call it a widget for this video. A customer goes on your website, makes a purchase, the order comes through, you review it the next business day before you ship it, and you're like, hey, this order looks suspicious. The customer misspelled their last name, and their address looks like a PO box. We don't want to take the risk, so we're going to refund the order. The problem is perhaps that the order happened on Friday night and you didn't check the order until Monday. That left at least 2 days for the cardholder to review their statement. In this example, let's pretend a fraudster used a stolen card to try to get their hands on some goods. Now, the cardholder didn't make the order, they looked at their credit card statement on the weekend. They saw a transaction for a thousand dollars that they did not recognize, and they called their bank and said, hey, this wasn't me, I want you to issue a chargeback.



Visa and MasterCard's recommended rules are not to collect funds until the merchant validates the order and insured inventory, so you're prepared to ship. It's best practice that not a lot of merchants do not follow. This is where pre-authorizations come in. That's where you could say, hey Dave, that's my card. You can put a temporary hold on my card for a thousand dollars. I can't spend those thousand dollars anywhere else. Not for five days. The pre-authorization will last for five days. At that point, the pre-authorization will expire, and then, the cardholder can use that money somewhere else, but for five days, those funds are locked up. They will go to this merchant if they choose to capture it, but as you can probably already see, it means that on Friday, if my card got preauthorized for a thousand dollars and on Monday, they looked at the order and said, hey, this doesn't look right, they just don't capture it. There's no discount rate. You already saved the money on your processing fees and a chargeback cannot occur, which will again avoid the chargeback fees.

Zero-dollar pre-authorization

Now, you don't also have to pre-authorize it for a thousand dollars. An even more sophisticated approach is a zero-dollar pre-authorization. Why would you do a zero-dollar verification request? Well, on Friday, you would do the zero-dollar verification request. You would find out if the cardholder address and CVV matched, and on Monday when you came in to review the order, you'd have these security results. If you wanted it, the system could automatically then issue a second charge to the card. Sometimes you just want to know how valid this card appears. Other times you want to know if the card appears valid and you want to lock up the funds. It doesn't make any difference though, because in both cases, you have not captured the funds of the card. Until you do that, you can't get a chargeback.

That is the reason why using pre-authorizations or zero-dollar verify requests can vastly reduce your chargebacks because it gives you a window to validate your orders before you capture the money. Until you've done that, you have zero chargeback exposure.


I hope I did a good job of explaining that. If you have any questions about pre-authorizations or improving your anti-fraud Pro processes, please do reach out to us at Thanks for watching and have a nice day.

Related Topics
April 19, 2022
A chargeback is a dispute between a customer and the business. In this video we explore what a chargeback is, and some of the reasons that chargebacks occur.
April 07, 2022
If you get too many chargebacks your merchant account can be shut down. In this video we explore what you should do to keep your account in good standing if you've been targeted by fraudsters and suddenly start receiving a lot of chargebacks.
February 07, 2023
Card testing is an increasing problem for #ecommerce merchants. Fraudsters are constantly looking for ways to test cards. It's even a problem for payment processors, Visa and Mastercard. In this video David explains what card testing is, why fraudsters do it, and how to stop it, in addition to advice on how to get some of the fees reversed when it occurs.
January 20, 2022
Hello, David here at Today I'm going to tackle a very frustrating topic. Sometimes it's infuriating. What do you do when you get a chargeback and you lose it and it's completely unfair? What's left? Stay tuned, I'm going to do my best to help in one second.
May 14, 2021
In the past the best way to manually screen suspicious orders was to call the customer on the phone and ask them questions. Now, with modern web based video technologies it's possible to validate customers in a way that was never previously possible.
March 16, 2018
Visa is addressing some of the most common chargeback related complaints from merchants. Going forward, chargebacks are a thing of the past and will now be known as disputes.
March 22, 2023
A positive AVS result is an indicator of a legitimate transaction. In this short explainer video David explains what AVS is, how it works, and things to be aware of when relying on an AVS security result for any particular order.
March 25, 2023
It can be difficult to win a chargeback dispute. David explores different ways to shift the odds into your favour.
March 29, 2023
David explains what two factor authentication is, how it works, and how it shifts chargeback risk for fraud onto the card issuer and away from the merchant.
July 21, 2023
How does Visa and MasterCard chargeback arbitration work? When a merchant has fought a chargeback and lost there is still one more chance to turn it around by taking it to the card brands for arbitration.
July 28, 2023
Merchants with businesses that are prone to disputes need to be careful to stay below the Visa and MasterCard thresholds.
January 10, 2024
There is a strong argument that 3DSecure (version 2) is the single best anti-fraud tool available to any online merchant. In this video David explains what 3DSecure is, how it works, how you set it up on your website, and different ways that it can be configured.

Need professional guidance?
Contact us for a free one hour consultation.

Can I Help Lower Your Processing Fees?

If you found this content helpful, will you give me the opportunity to quote on your business?

View Rates
David Goodale About the Author

My name is David Goodale, CEO at Merchant I launched our business in 2001 and have over 20 years of expertise in the field of online payments. If you have a payments related question or project, and especially if it relates to multi-currency or international e-commerce don't hesitate to contact me. I'm always happy to help with an honest opinion, and enjoy chatting with folks from interesting businesses.

Toll free: 888-414-7111 ext. 5
Direct: (905) 901-2254