If you have read anything about online payments in recent times, two terms may sound familiar: Payment Authentication and Payment Authorization. Both of them are completely different processes, yet people seem to consider them one.
This is why in this article, we’ll dive deep into each of them and understand the difference between the two. In short, let’s talk about the distinctions between payment authentication and authorization and how they function so you can grasp what they are and when to use them.
Why This Distinction Matters
But first, we need to understand why this distinction matters in the first place. You see, Digital payments have been steadily increasing, and even B2B transactions are now happening digitally. So much so that even a tiny mistake in these transactions may cause errors that cost customers millions, and even a simple misunderstanding between the two terms can cause a lot of friction in the processes, which leads to declines and even security vulnerabilities. Now, to put it in a single sentence, the difference between the terms can be defined by two questions.
| Authentication | Authorization |
| Who are you? | Can you proceed? |
So the question is, what is the difference? Before we answer that, let’s understand both these terms separately.
What is Payment Authentication?
Let’s start with Payment Authentication. In the world of payments, the authentication process makes sure that a person has the authority to access money from an account or use it to make a payment based on who they say they are.
For instance, when a person uses an ATM keypad to input their PIN to get money from their bank account, the PIN is a security token that proves that the person is the account owner.
Similarly, when a customer tries to pay using a credit card number, the card issuer examines the card number and type, the security code, and the cardholder’s billing address to ensure the payment is real.
Two-factor and sometimes multi-factor authentication are becoming more common because fraud is happening more often.
Two-factor or multi-factor payment authentication uses a mix of different “items” or ways to check a user’s identity. These are things that a person possesses/ knows/ is.
Something a Person Has
A phone, computer, or tablet that the person pays for or an account that the person controls. Sending a code to a device via email or text, or recording the IP address of a device when a customer logs in to their account, can prove their identity.
Something a Person Knows
This could include the last four digits of a person’s Social Security number, address, phone number, or login and password information. It could also include information that only the account holder or someone very close to them, such as a spouse or next of kin, would know.
Something a Person Is
In this case, biometric data like fingerprint scanning and facial recognition software are used to verify payments. More and more people are using biometric payment authentication instead of passwords and PINs since it is more secure.
What is Payment Authorization?
Now, let’s understand what Payment Authorization is. Payment authorisation is a part of the payment processing system that checks the transaction data several times to make it easier to release the customer’s money. People commonly use the terms “credit card authorisation” and “credit card transaction” interchangeably because they are both related. But other ways to pay, such as direct bank deposits (echecks, ACH), have their own ways of checking payments.
Key components
There are some key components of Payment authorization, they are:
- Payment gateway: A form that lets you submit a customer’s payment details. This is done with a virtual terminal, POS software, or an online store.
- Merchant acquirer: The bank that gives the firm a merchant account through a partner payment processing service.
- Payment processor: A software service that gives you the tools to send transaction data and funding details.
- Card network (for credit cards): A group of brands that work with a partner bank to offer credit card services to customers.
- ACH (for direct bank debits): A bank that handles and checks ACH payments like direct debits and e-checks.
- Customer’s issuing bank: A bank that works with card networks to give people credit cards.
Key Differences Between Authentication and Authorization
So, how are both of them different? The table below makes it clear.
| Aspect | Authentication | Authorization |
| Definition | Verifies the identity of a user – confirms they are who they claim to be. | Determines what actions, data, or services the verified user is allowed to access. |
| Analogy (Airline Example) | Checking the passenger’s passport/ID to confirm they are the ticket holder. | Assigning the passenger a seat, baggage allowance, and access to in-flight services. |
| Purpose | To establish trust in the user’s identity. | To grant or deny permissions based on rules or policies. |
| When It Happens | First step in the process (before granting access or payment approval). | Follows authentication (permissions applied after identity is confirmed). |
| Examples in Payments | – One-time PINs (via SMS, email, call) – Authentication apps (security codes) – Biometrics (fingerprint, face, retina) | – Approval or decline of a payment request – Applying spending limits – Blocking transactions from certain merchants – Policies set by the issuer’s security system |
| Visibility to User | Visible – users actively provide information (PIN, password, biometric). | Mostly invisible – handled by banks, networks, and security teams. |
| Outcome if Failed | The user’s identity cannot be verified, the transaction is stopped. | Payment is denied or restricted, even if the user was authenticated. |
Conclusion
Authentication verifies if the actual user is making the payment, while authorisation allows a payment to happen. While it might not sound much in the grand scheme of things, even a simple oversight, such as confusing the two, can cause significant problems for both the consumer and business, often in the form of monetary loss. In short, Authentication and Authorization work together like a lock and key. One ensures identity, the other ensures ability.