Meaning
Point of sale terminals execute a local risk-assessment algorithm to approve a card transaction when a direct telecommunications link to the payment network or issuing bank is unavailable. This offline payment authorization relies on pre-configured security rules and limits stored on both the terminal and the customer chip card to validate the transaction without real-time approval. Businesses in remote areas or transit systems use this method to maintain checkout velocity.
Risk Management
Financial institutions assign specific limits to cards to control the liability associated with delayed settlements. Under the framework of offline payment authorization, the merchant bears the loss if the card is subsequently found to have insufficient funds once the transaction is uploaded. Sellers must monitor their total exposure under these conditions.
Terminal Execution
The payment terminal checks the terminal floor limit and the card’s history before permitting the sale to continue. During offline payment authorization, the smart card’s secure chip generates an offline cryptogram that is stored securely in the terminal’s internal memory. This transaction is queued for later batch transmission.
Delayed Settlement
Batch processing systems upload the stored transactions once network connectivity is restored to complete the payment cycle. This later transmission triggers the actual transfer of funds from the issuer. Reconciliation occurs after network reconnect.
