What is credit card verification?

Definition and Example of Credit Card Authentication

How Credit Card Authentication Works

Types of Credit Card Authentication

Authentication vs. Authorization

Definition and Example of Credit Card Authentication

Credit card authentication is the verification of the identity of the person presenting a credit card for a purchase. If the identity cannot be verified, the authentication will fail, and the transaction will be declined.

For example, if you use your credit card to pay for fuel at a gas station, you may be asked to enter the zip code related to your billing address. If you enter the wrong zip code, the authentication will fail, and the transaction will be declined.

This is a type of credit card authentication to ensure – although not perfectly – that you are the person presenting the card for payment.

How Credit Card Authentication Works

When you present your credit card for a purchase, the merchant may be unaware if you are the actual cardholder. This is especially true for online payments, where neither you nor the card is seen by the merchant.

This is where credit card authentication comes in. By implementing authentication procedures – even simple measures like verifying your zip code at the gas station or entering a password for an online purchase – merchants and credit card issuers can reduce the likelihood of credit card fraud.

Although no type of credit card authentication is completely foolproof – as a thief who stole your wallet can glance at your driver’s license to see your zip code, and hackers who have obtained your credit card information can get your passwords – authentication offers some security against fraudulent transactions.

Types of Credit Card Authentication

There are four possible types of credit card authentication: knowledge, characteristic, possession, and user location.

Knowledge

Credit card authentication by knowledge involves verifying that the customer knows something that only the cardholder knows.

For example, an online store may require you to enter a password associated with your card that only you, as the cardholder, know before completing your credit card purchase.

Characteristic

Credit card authentication by characteristic involves verifying that the customer has attributes that belong only to the cardholder.

For example, a merchant may use your biometric information, such as a fingerprint or facial recognition, or voice, to verify that you are indeed the cardholder.

Possession

Credit card authentication by possession involves verifying that the customer owns something that only the cardholder possesses.

For example, an online store may require you to enter a code sent to your mobile phone before completing your credit card purchase.

Signing a receipt is another form of possession-based authentication, although signature-based authentication is increasingly considered an outdated form of verification.

User Location

Credit card authentication by user location involves comparing the location of the credit card use with the customer’s billing address or the area where they typically use their credit card.

For instance, if you generally use your card in Texas, authentication may fail for a transaction made using your card in Australia, in which case the transaction will be declined.

Note

If you plan to travel abroad, make sure to inform your credit card issuer of the places you will go to avoid having your card declined due to authentication issues.

As technology advances, so do the methods of credit card authentication. For example, signing credit card receipts and even entering passwords are considered outdated forms of authentication, while advanced technologies such as biometric recognition are increasingly being adopted.

Authentication

Credit Card Authentication vs. Credit Card Authorization

Credit card authentication is not the same as credit card authorization.

While authentication relates to verifying the customer’s identity, authorization ensures that the card itself is valid for the purchase being presented. When a credit card issuer authorizes a transaction, it informs the merchant that the merchant will be paid.

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Sources

The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts in our articles. Read our editorial process to learn more about how we fact-check and ensure the accuracy, reliability, and quality of our content.

Mastercard. “Signing Off: Mastercard Moves Beyond Signatures Worldwide.” Accessed October 26, 2021.

Visa Consulting & Analytics. “Accelerating the Shift to eCommerce.” Page 4. Accessed October 26, 2021.

Source: https://www.thebalancemoney.com/what-is-credit-card-authentication-5207209