What Is a Floor Limit?

A floor limit—also known as a credit floor—is the maximum charge that a merchant will accept on a credit card without obtaining authorization from the card issuer. Floor limits are d🅰esigned to limit merchants' and ca𝐆rd issuers' potential losses from fraudulent credit card transactions.

How Floor Limits Work

Historically, merchants would verify credit card transactions over a certain amount by calling the customer's bank or card issuer. Because this process was time-consuming, and potentially insulting to the customer, purchases for less than the limit could be completed without it, with the merchant taking a calculated risk. The exact size varied depending on the store, and it became known as the store's floor limit.

Today, floor limits have faded in importance because of the ease of obtaining electronic payment authorizations through merchants' 澳洲幸运5开奖号码历史查询:point of sale (POS) terminals. In fact, it has become so fast an💞d easy that most transactions today involve verification even for relatively small amounts.

Many card issuers and processing networks require merchants to set their POS terminals for so-called 澳洲幸运5开奖号码历史查询:zero-floor limits, meaning they must verify every transaction of any amount.

The information used for verification is on the card itself, in the form of an 澳洲幸运5开奖号码历史查询:embedded microchip on the front and a magnetic stripe on the back. In addition, today's cards carry three- or four-digit 澳洲幸运5开奖号码历史查询:validation codes, also known as CVV, CV2, or CVV2 codes. These codes are useful in verifying cards and card numbers when they're used𓂃 in online or phone transactions, where the physical card is not present. A thief who has someone's cre♕dit card number but not the actual card won't be able to supply the validation code if asked for it, and the merchant can cancel the transaction.

However, there are some instances in which traditiona🐽l floor limits continue to be used. When a POS terminal is unable to access the payment gateway—for example, due to an electrical blackout or internet connectivity issues—merchants will often allow transactions to proceed without authorization provided they are below a certain size. Similarly, some stores still use physical card imprints and other manual authorization methods as a back-up solution for when electronic systems fail. In these circumstances, floor limits often come into play.

Real World Example of a Floor Limit

Emma owns a small store that processes about $1,500 in daily transactions. When starting her store, she needed to develop policies that balanced her own need for fraud protection against her customers' desire for speed and convenience. 

One of her key tasks was to select an appropriate floor limit for her employees to use when electronic payments are unavailable. If she chooses a floor limit that is too high, she might expose herself to fraudulent p𝐆ayments. On the other hand, choosing a very low floor limit could risk frustrating her customers and increasing the time and labor required to complete sales. Observing that her average transaction size is below $20, she decided on a floor limit of $50.

Thankfully for Emma, the issue of floor limits seldom arose in the ordinary course of business. Except for rare instances when her internet connectio𝄹n failed, her electronic payments system automatically conducted its own transaction authorizations, protecting bothꦯ her and her customers from the risk of fraud.

The Bottom Line

Floor limits help protect merchants, card issuers, and cardholders from fraud. While consumers might not even be aware of it because it happens almost instantaneously, virtually every time they use a credit or debit card, the merchant's sales terminal will run a check on their card to make sure it's valid.