Floor Limit

What Is a Floor Limit?

A floor limit — otherwise called a "credit floor" — is the maximum charge that can be made to a credit card without getting prior authorization. In that capacity, a floor limit is intended to safeguard against the risk of credit card theft.

How Floor Limits Work

By and large, dealers would confirm customer transactions by taking physical engravings of a credit card. Notwithstanding, in light of the fact that this cycle was tedious, it was generally done exclusively for transactions of a certain size. The specific size shifted relying upon the store, and became known as the store's "floor limit." Any purchase for not exactly the floor limit could be completed without physically confirming the card, while bigger purchases required verification.

Today, floor limits have blurred in significance as a result of the simplicity of electronic payment authorizations. Since this authorization no longer requires physical engravings, yet is rather carried out through the trader's point of sale (POS) terminal, most transactions today require verification even for moderately small sums.

Notwithstanding, there are a few occasions where floor limits keep on being utilized. At the point when a POS terminal can't access the payment passage — for instance, due to a power blackout or internet network issues — vendors will frequently allow transactions to continue without authorization gave they are below a certain size. Essentially, a few stores actually utilize physical card engraves and other manual authorization methods as a back-up solution for when electronic systems fail. In these conditions, floor limits are frequently utilized.

Real World Example of a Floor Limit

Emma claims a small convenience store that processes about $1,500 in daily transactions. While starting her store, she expected to foster policies that balanced her own requirement for fraud protection against her customers' craving for convenience.

One of her key tasks was to choose a fitting floor limit to utilize when electronic payments are inaccessible. Assuming she picks a floor limit that is too high, she could expose herself to fraudulent payments. Then again, picking an extremely low floor limit could risk disappointing her customers and expanding the time and labor required to complete sales. Seeing that her average transaction size is below $20, she settled on a floor limit of $50.

Fortunately for Emma, the issue of floor limits rarely emerged in the ordinary course of business. With the exception of the rare examples where her internet association failed, her electronic payments system consequently managed its own transaction authorizations, protecting both her and her customers from the risk of fraud.

Highlights

• All things considered, floor limits were set by stores and required making a physical engraving of a credit card.
• Today, transaction authorizations are carried out almost quickly through electronic payments network. Floor limits are hence less unmistakable than they were in the past.
• A floor limit is the maximum charge that can be made to a credit card without prior authorization.