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What is two-step payment

Two-step payment, also known as AUTH+Settle, is a payment processing method where a payment is authorized or "pre-authorized" at the time of purchase, and the actual payment is settled or captured at a later time.


Here's how the process works:

Authorization: When a customer makes a purchase, their payment method is authorized for the amount of the purchase. The payment gateway or processor checks with the customer's bank to ensure that they have sufficient funds or credit available to cover the purchase. If the authorization is approved, the payment method is "pre-authorized" for the purchase amount, but the payment is not yet captured or settled.


Settlement: After the authorization is approved, the merchant can choose to capture or settle the payment at a later time, usually when the product or service has been delivered to the customer. The merchant will send a request to the payment gateway or processor to capture or settle the payment, and the payment will be deducted from the customer's payment method.


Advantages of Two-step payment:

  • Reduction of chargebacks

One of the advantages of two-step payment is that it reduces the risk of chargebacks or disputes, as the payment is only settled once the product or service has been delivered. It also allows for easier refunds or cancellations, as the payment has not yet been settled.
However, merchants should be aware that pre-authorizations may expire after a certain period of time, so it's important to settle the payment within the authorized time frame.
If a merchant's business model involves monetizing through subscriptions and the chargeback ratio on recurring payments is high, the merchant can have a possibility of  Delayed Settle.

  • Increasing the acquirer's portfolio

Transitioning to a two-step payment system can assist merchants in expanding their acquirer's portfolio, as the majority of acquirers operate on a two-step payment.

  • Flexibility  of payment logic 

AUTH+SETTLE provides increased flexibility in creating payment logic and managing products. This means that users can design and implement custom payment workflows that align with their unique business requirements, as well as manage their products in a more agile and adaptable manner. The platform's enhanced capabilities enable businesses to more effectively navigate the complexities of payment processing, while also providing greater control over their product offerings.

  • Enhanced Security

Payment AUTH+Settle is a two-step payment processing model that requires customers to authorize a payment before it can be settled. This means that the customer must first verify the transaction before the funds are transferred. This extra layer of security helps prevent fraudulent transactions and reduces the risk of chargebacks.

  • Improved Customer Experience

Payment AUTH+Settle can also improve the customer experience. Customers can verify and authorize the payment in real-time, which can help reduce the risk of failed transactions or delays. This can help build customer trust and loyalty, which can lead to repeat business and positive word-of-mouth.

  • Compliance

Payment AUTH+Settle can also help merchants comply with industry regulations and requirements. This payment processing model is designed to meet the highest security standards and can help merchants meet their obligations for data privacy and security.

In conclusion, Payment AUTH+Settle is a payment processing model that offers a number of advantages for merchants. It provides enhanced security, increased efficiency, improved customer experience, lower processing costs, and compliance with industry regulations. If you are a merchant looking to improve your payment processing, Payment AUTH+Settle is definitely worth considering.

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