Why aren’t e-commerce websites in Nigeria using card pre-authorization?
Lately, I’ve been exploring card pre-authorization because I intend to write a PHP tutorial on how to implement it, but then it got me thinking — why aren’t e-commerce websites in Nigeria using card pre-authorization? Personally, I think it would be a good choice.
For those that may not know what card pre-authorization is, for simplicity, it’s basically charging a card, but instead of the customer getting debited, the amount is put on hold for a certain period of time, usually, 5–7 days, the duration is dependent on the MCC(Merchant Category Code).
When an amount is pre-authorized on a customer’s card, the customer wouldn’t be able to spend the amount until the pre-authorization expires. Here are two things that can happen before a pre-authorization expires:
- The amount can be captured (the amount would be taken of hold and credited to the merchant).
- The amount can be released to the customer’s card.
I think one of the perks of using pre-authorization is more security for the merchant.
While the customer is always right, and most businesses do everything to protect the customer’s interest, most times, businesses lose too much in the process. I remember my conversation with a Laptop seller in Ikeja, he told me about someone in Anambra state that ordered his product via Konga, a phone call confirmation was done and after all the hassles of delivery to another state, the customer said he was just “testing” and he didn’t know they would actually deliver it. Imagine the rage of this seller! Also, imagine the loss on Konga’s part to transport the goods to and fro.
For customers that like to “test”, I think a pre-authorization of the amount is in order. Also, for orders that are very expensive to deliver, a pre-authorization is also in order.
Would pre-authorization reduce fraud? Maybe, let me explain.
When all transactions are pre-authorized and only captured after the buyer has been confirmed, if a transaction is deemed to be suspicious, the merchant can either allow the pre-authorization to expire or release the funds immediately.
The Nigerian bank anomaly: Because pre-authorization isn’t a debit, a debit alert shouldn’t be sent to the customer until the amount is captured. However, some Nigerian banks send debit alerts when an amount is pre-authorized, and still send a debit alert again if the amount is captured(Although, the amount is taken from the customer’s account once). Thinking of it now, this actually acts in favor of both parties to reduce fraud, because the card owner can make a complaint to the bank or the merchant immediately he/she gets a strange alert for a pre-authorization 😃
Another perk, it costs nothing to make “reversals” — funds are simply released to the customer’s card.
By default when a transaction is reversed to the customer’s card, except the reversal amount is set to be less the transaction charge, the merchant ends up losing the transaction charge incurred for processing the transaction in the first place. With pre-authorization, for fraudulent cases or cases of fickle minded buyers, e.t.c the amount can be released without stress/loss.
Would pre-authorization solve the POD(Payment on Delivery) problem in Nigeria? Not entirely, but it can help. This may also require some changes to the business process, but I don’t think it’s a bad idea to explore.
There are also a lot of use-cases for pre-authorization, most hotels use it to ensure their guests have the funds required, and Uber Nigeria currently uses it to ensure riders have the estimated amount for a ride.
What industry or business do you think pre-authorization can help?