Business, Legal & Accounting Glossary
The authorized limit placed on a credit card transaction based on the outstanding balance due on the account or the existence of other past due accounts in the cardholder’s credit history. Opposite of floor limit which is the largest credit card transaction that can be approved without prior authorization by the card issuer.
The term “zero-floor limit” refers to a merchant policy that requires merchants to get authorisation for each transaction completed at their location, regardless of its amount. By contrast, some stores require authorization only for transactions over a specified size threshold, referred to as the store’s floor limit.
Zero-floor limitations are becoming a more popular provision. By utilising powerful computerised systems that are now in charge of payment processing, transactions can be authorised in a matter of seconds. Indeed, there is little difference in the amount of time necessary to authorise a large transaction against a small one. As a result, zero-floor limitations have become increasingly popular in recent years.
Previously, retailers wishing to authorise a transaction were required to physically imprint the customer’s credit card. This process would inevitably decrease transaction speeds, prompting many merchants to implement floor limits: minimal transaction sizes below which transactions do not require authorization. Merchants and customers alike can benefit from increased fraud protection by adopting a zero-floor limit policy.
Although zero-floor limitations are gaining popularity, they were originally utilised primarily in instances where the merchant did not have physical access to the customer’s credit card, such as shopping websites or mail-order businesses. In these instances, referred to as “contactless transactions,” it has long been common to authorise all transactions regardless of their amount in order to safeguard against the risk of purchases being made using stolen credit cards.
Although merchants have considerable leeway in determining their own floor limit, credit card issuers can set their own regulations, which merchants must abide. If a merchant enables a transaction to be processed without conforming to the credit card company’s floor limit restrictions, the credit card company may penalise the retailer.
Emma was taken aback when she reviewed her monthly credit card statement and discovered several tiny transactions at places she did not know. Concerned that her card had been compromised, she notified her credit card issuer of the possible fraud.
Following an investigation, Emma’s credit card provider confirmed that her credit card information had been stolen and used to make online transactions by the criminal. Due to the tiny value of the purchases, the thief was able to avoid discovery by making purchases from online shops who did not have zero-floor limit regulations.
Fortunately, Emma’s credit card provider agreed to compensate her for the fraudulent transactions and send her a replacement card. They warned Emma that the credit card company would require all businesses to have zero-floor limit restrictions looking forward in order to lessen the danger of future fraud.
Zero Credit Floor
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This glossary post was last updated: 7th January, 2022 | 0 Views.