What Is Credit Card Authentication?

Dec 25, 2023 By Triston Martin

The process confirms the legitimacy of a client's credit card through a check with the business that has issued the credit card. Authentication is generally the first part of the transaction when using a credit card. After the card has been authenticated, the transaction is accepted or rejected. The amount is added to the credit card statement, and the purchase is added to the credit card account used by the retailer.


Alongside the customer, the electronic payment transaction is a collaboration between four parties, including the retailer, the bank that the merchant uses, and a network processor and the issuer of the card. The bank of the merchant is known as the bank that acquires merchants. Many banks are part of the main card networks like Visa and MasterCard, which allow them to function as merchant-acquiring banks for businesses that accept credit card transactions.

Through the network processor, the seller demands that the bank handling the transaction be responsible for processing the transaction. After the card issuer has authenticated the card and approved the purchase, it will be recorded in the client's credit card account and transferred to the merchant's bank account.

When You Swipe

If a card is swiped or inserted into an online site, the transaction details are transmitted electronically to the bank that facilitated the transaction. The bank sends the details directly to the issuer to ensure verification. The card's issuer checks every detail, including the card's number, the type of card, its security code, and the cardholder's billing address. Issuers have a variety of procedures in place to make sure that the transaction isn't fraudulent.

Authorization Communication

Authorization is the next stage in transferring money via credit card. The issuer transmits the latest authorization to the merchant's bank, the acquiring bank. The bank gets the message and then authorizes the payment for the merchant. The final authorization process allows the bank that accepts the payment to deposit into the merchant's account. Therefore, merchants depend on merchant banks that acquire customers for processing payments and account maintenance. When a transaction is made using credit cards, the bank that the merchant is acquiring is also the bank that settles, accepting the payment funds and depositing them into merchants' accounts.

This complex set of steps can be accomplished in just a few minutes for anyone who has ever used a computer. Merchant acquiring banks generally charge merchants transaction charges and monthly account charges. The banks that acquire merchants also take care of the potential risk of issues that arise from non-settlement charges, chargebacks, or refunds and are covered by monthly account charges.

Different Types

There are four options to verify the authenticity of credit cards: knowledge, inherence ownership, and location of the user.


Credit card authentication based on knowledge is achieved by confirming that the cardholder is aware of something only the cardholder knows. For instance, an online retailer may require you to enter an account password associated with the credit card that only you, the cardholder, will know before completing your payment with your card.


Inherence is a method of authentication for credit cards. It is accomplished by confirming the client's identity with attributes specific to the cardholder and cardholder alone. For instance, a merchant could use your biometric data like fingerprints, palm, and facial or voice recognition to prove that you're the cardholder.


The authentication of credit cards through possession is accomplished by confirming that the cardholder is in possession of something only the cardholder could have. For instance, the online retailer might require you to enter an e-mail to your mobile device before purchasing with your credit card. A receipt that you sign is another method of ownership-based authentication. However, it is increasingly considered to be a dated type of authentication.

User Location

The authentication of credit cards by location is achieved by comparing the credit card's location with the cardholder's billing address or the location where they normally utilize their credit cards. For instance, if you usually use your credit card in Texas, however, a transaction made to your card from Australia might not be able to verify, so the transaction would be denied.

As technology moves forward, so do credit card authentication methods. For instance, the signing of receipts for credit cards and even input for passwords are being seen as outdated forms of authentication. However, modern technologies, like biometric authentication, are gradually being used.

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