Blocking of amount on international forex cards

Question

I took a forex card from the state bank of India. In the leafleft, they have this section in their terms and conditions:

Travel & Entertainment transactions:

The blocking of the amount as per international practice and approved by VISA would be: i. For hotel, car rentals and cruise lines - 15%% ...

Unattended Terminals txn - US $40

In addition, the blocking of the amount will be aligned with international practices and approved by VISA From time to time.

What is this blocking related too?

Answer 1

A card block puts a hold for a certain amount of money on your card before the total amount of your bill can be known. The merchant charges a certain amount of money to a customer's card in advance of knowing what their actual bill will be. For example, hotels use card blocking to ensure that a guest will have enough money available on their card to pay their entire bill when they check out. Hotels and other suppliers sometimes refer to this process as an authorization hold or a pre-authorization hold.

Card blocks can have a significant impact on a cardholder with a low credit limit or who only has a small amount of credit.

See eg https://usa.visa.com/dam/VCOM/global/support-legal/documents/best-practices-authorization-and-reversal-processing.pdf

Answer 2

When you make a payment with a card, there are nearly always two different operations:

• an authorisation
• the actual charge

For most transactions (like when you buy groceries in a store), the authorisation happens at the time of the purchase, with the exact amount known, and the charge happens either at the same time or overnight.

In some cases, a supplier needs a guarantee of some sort for a little while: for instance in a hotel they will request an authorisation when you check in, for the amount of the stay and/or for incidentals (room service, minibar, bars and restaurants in the hotel…). When they do that, the amount is “set aside” by your bank so when they final send the charge (at the end of the stay), they are sure that money is available. That money is “blocked” during that time, and you can’t use it: it’s as if you had already spend it, except that the amount may be smaller in the end, in which case the difference will be “released”.

Note that this only works if the supplier correctly handles authorisations and charges. Some are bad at it, and will make an authorisation, but then at the time of taking the payment, will get a new one instead of either cancelling the first one or charging the existing authorisation. In that case you will temporarily have a “double charge”, until the first authorisation expires (usually after a week or so).

In some other cases, when the authorisation is requested, the exact amount is not known already:

• You are in a restaurant in a place like the US where it is customary to add service: when they bring you the receipt to fill out and sign, they don’t yet know how much are going to add. In that case, the system will actually issue an authorisation for a higher amount than your bill, here 15%
• You are at a self-service gas station and you don’t yet know exactly how much is going to be used. They need to take an authorisation for some maximum amount you can take. Here $40.

In these last two cases, the “correct” amount will be sent a few minutes/hours later, but you need to have the money available in the first place: if you use your card at a gas station and only have $10 available, it won’t work, even if you wanted to only use $40 worth of gas.