Authorization reversal

For an order, when a payment is authorized, the required amount is blocked from the payment account. After the amount is blocked, the merchant is responsible to fulfill the order within the committed time limit or it can dissatisfy the customer if the order is not fulfilled but the amount remains blocked from their account, particularly for high value orders. Also, the credit card companies or the other digital payment gateways mandate authorization reversal for unfulfilled orders before the authorization expires. So, if the order is not fulfilled within the committed time, the merchant must reverse the payment authorization.

The Reverse Authorization feature in the IBM® Sterling Order Management System enables merchants to implement an authorization strategy that generates a reversal request before the unused authorization expires. This feature also provides a way to handle differing authorization and settlement amounts.

So, you can implement the authorization reversal strategy for the following advantages:
  • Avoid chargeback for back orders or for the inability to fulfill orders.
  • Avoid chargeback when the authorization amount is higher than the settlement amount.

Consider an example of credit cards as a payment method. When an amount is blocked but the settlement is not done within the stipulated time, some credit card companies might levy a chargeback to merchants if the authorization is not reversed before the authorization expires. Some credit card companies might also levy a charge if the settlement amount is higher than the authorization amount, beyond the threshold value. For example, greater than 15%. For such scenarios, merchants can implement the authorization reversal strategy so that the amount is unblocked from the account of the customer post the successful authorization reversal.

Prerequisites

When an order is placed by the customers, during the check-out process, the payment must be fully authorized in the e-commerce platform.

Considerations for immediate authorization reversal

The following examples can help you understand the business scenarios when the authorization must be reversed immediately.

Order is canceled completely or partially

A customer places the following order and the amount is blocked from the credit card of the customer:
  • Order line 1 - Laptop for $500.
  • Order line 2 - Optical mouse for $25.
If the customer cancels the order line 1 from the placed order, you can configure one of the following ways in the Sterling Order Management System to reverse the authorization:
  • Reverse $525 and take new authorization for $25.
  • Keep the $525 authorization as is, and charge for $25.
  • Reverse $500 and charge for $25.
You can decide the authorization reversal strategy by doing the cost benefit analysis for retaining the authorization or creating a new authorization.

Authorization is expired

Some credit card companies prefer that the authorization is reversed within 24 hours of expiry if the merchant cannot fulfill the order in the stipulated time. You can configure the authorization reversal to happen few hours before the expiry time in Sterling Order Management System.

Order is in backordered status

A customer places the following order and the amount is blocked from the credit card of the customer:
  • Order line 1 - Laptop for $500.
  • Order line 2 - Optical mouse for $25.

This order is backordered and the Sterling Order Management System application tries to resource it but is unable to find the inventory. In this scenario, it is recommended to reverse the authorization and take a fresh authorization after the inventory is available.

If the backorder is of a smaller value, the customer might be fine with the blocked funds. But, if the order value is large such as for home appliances, and the order fulfillment time is not clear, it is recommended that the authorization is reversed, which can unblock the funds of the customer.

Implementations in Sterling Order Management System

By default, Sterling Order Management System uses the authorization reversal strategy that is configured in Sterling Business Center to handle the authorization reversal in scenarios such as order cancellation and authorization expiry. For backorders, you must customize the ON BACKORDER event to reverse the authorization by creating a charge transaction for authorization reversal.
Note: You must also consider authorization reversal compliance in your region that enforces merchants to reverse the expired or unused authorizations.

Handling authorization reversal

Authorization reversals are driven by the authorization reversal strategy for a payment type. You can configure the authorization reversal strategy in IBM Sterling Business Center in the following page:

System Setup > Payments > Payment Type > Charge

For more information, see Configuration options.

  • Reverse when expired - If the current date is greater than the authorization expiration date, the authorization is expired. IBM Sterling Order Management System creates an authorization reversal request automatically. The payment adapter calls the Cancel API. For example, cancel (/payments/{PaymentPspReference}/cancels) API of Adyen.
  • Do not reverse - If an authorization expires, Sterling Order Management System does not create the authorization reversal request and the payment adapter does not trigger any action.
  • Reverse excess - If the authorization amount is greater than the charge amount, then Sterling Order Management System creates a charge transaction request to reverse the excess amount.

    For example, the original order total is $100. The customer updated the order and the updated order total is $80. Sterling Order Management System reverses the $20 excess authorization.

    In this scenario, the adapter calls the amount updates (/payments/{PaymentPspReference}/amountUpdates) API of Adyen.