Offline Authorization

Offline authorization is the approval of a card payment at the point of sale without sending a real-time request to the card issuer. Instead of asking the issuer whether to accept the transaction, the payment terminal and, for chip cards, the card itself decide, using rules and limits that the issuer and acquirer have configured in advance. The transaction is recorded and sent to the acquirer later, usually in a batch, for clearing and settlement. Offline authorization allows card acceptance where a network connection is unavailable, unreliable or too slow, such as on aircraft, ships, at unattended payment terminals, trains, buses and some vending machines.

Offline authorization is the opposite of online authorisation, in which every transaction is approved or declined by the issuer at the moment of purchase. It should also be distinguished from stand-in processing, where a network or processor approves on the issuer's behalf while the issuer is unreachable, but the request is still made online. A transaction completed this way is often called an offline card transaction.

The EMV chip standards were designed partly to make offline approval safe. During a chip transaction, the terminal and card go through a series of steps:

• Offline data authentication. The terminal checks that the card is genuine using cryptographic signatures from the issuer and the card network, in methods known as static, dynamic or combined data authentication.
• Cardholder verification. The card and terminal agree on a cardholder verification method; for offline PIN, the chip itself checks the PIN entered.
• Terminal risk management. The terminal compares the amount with its floor limit, the maximum it may approve without going online, and may randomly select some transactions to send online.
• Card risk management. The chip checks its own counters, such as the number of consecutive offline transactions and the cumulative offline amount since the last online contact.

If all checks allow it, the card generates a transaction certificate, a cryptogram showing that it approved the payment offline. If not, it asks to go online, or declines. Authorisation response codes in the transaction record show whether a payment was approved or declined offline.

Offline approval remains common in a few settings:

• In-flight and maritime sales. Cabin crew take payments during flights and the terminal uploads them after landing.
• Transit. Gates and validators on buses and metros need to accept taps in a fraction of a second, so many accept cards offline and check them afterwards, often within account-based ticketing systems.
• Unattended machines. Some vending machines, parking meters and toll booths without constant connections use offline approval for small-ticket transactions.
• Network outages. Some merchants allow limited offline approval when their connection fails, to avoid losing sales.

The main risk of offline authorization is that the issuer cannot check the account at the time of purchase. A card may have been reported lost or stolen, the account may be closed, or the balance may be insufficient, yet the terminal approves the payment. When the transaction is later presented, the issuer may decline it or the merchant may face a chargeback. Card network rules generally allocate the loss according to whether the merchant followed the rules for floor limits and offline acceptance. Transit operators often accept a small "first ride" risk and then block cards that fail, through deny lists pushed to their readers.

Offline approval is safer with chip cards than with magnetic stripes, because chip cryptograms cannot easily be copied and the card's own counters limit repeated offline use. Magnetic stripe transactions approved offline carry much higher counterfeit risk, which is one reason many markets now require online authorisation for swiped cards.

As mobile data coverage and terminal connectivity have improved, the share of offline transactions has fallen in most markets. Many issuers now configure cards to always go online where possible, and many card products, especially prepaid and some debit cards, are designed to be online-only. Contactless cards also support offline approval only within the limits the issuer sets. Offline authorization nonetheless remains important in environments where speed or connectivity matters more than real-time checks, and newer offline payment designs for central bank digital currencies and digital wallets draw on the same ideas of pre-set limits and secure hardware.