PayPal + Debit or Prepaid card + Order now, pay later seller = Headache...

When an onlilne seller says 'order now, but we won't charge until the item is shipped', it sounds sweet to the customer. I misunderstood this sentence, where my headache started from.

I thought, they won't do anything with payment in any method, until they ship the item. However, they actually did authorization to my account. Authorization is not a real payment, but just checking my account whether I have sufficient money for the payment. It's exactly same as when you rent a car, or check in to a hotel, they authorize some deposit from your credit card. It is not a problem in credit card when you have enough credit, as the authorization itself doesn't really charge anything to myself.

However, it arises a problem if the authorization is done on a debit or prepaid card, since the bank took the money from the account even if it's just authorization, not the actual payment. Usual mechanism of the transition from the authorization to the payment is, however, firstly to cancel the authorized amount and then to charge again for the real transaction.

Imagine the rent company. What they do is to authorise the estimated cost from the credit card when you're starting the rental. After returned the car, they will calculate the actual cost in total including excessed KMs, fuels, late return, etc, then charge the final amount to the credit card again, at the same time the previous authorization is cancelled.

I haven't noticed that the online retailer would follow the exactly same process. Apparently they authorized to my debit card through paypal when I placed an order a week ago. However, it's not actually 'charged' because the item was out of stock. After a week, when they received some stock, finally they try to charge me. However, in my bank account I didn't have sufficient balance due to the 'authorized transaction'. Even if they canceled the previous authorization and tried another transaction for the real payment, it takes about a week for the the canceled balance to show up on my account.

So, the actual payment transaction was rejected by my bank and PayPal, and the online retailer cannot process the real payment.

It's actually a stupid idea to add this weird authorization stuff into the payment process from an online retailer. As the authorization is still a sort of charging process, especially when I used debit card, it's actually a double-charge. For PayPal, credit card company and the bank, I guess they can just convert the authorization transaction into the real payment transaction, not by cancelling the previous transaction and creating another transaction which is exactly same as the cancelled one.

Be aware of using debit card when you saw the statement "order now, pay when it is shipped". In such a case, put sufficient money into your account, which has to be more than twice of the price, or just use a credit card.

More detailed information about the credit card authorization and payment (which is officially called credit capture formally):
http://www.paymentsgateway.com.au/what-you-need-to-know/payments-gateway-authorization-and-capture

Added: it was particularly a problem to me since my actual payment transaction was made after a week from the original authorization. It seems there wouldn't be this kind of problem if the payment (a.k.a credit capture) is processed within 3 days from the authorization, according to PayPal. More details are:
https://developer.paypal.com/docs/classic/paypal-payments-standard/integration-guide/authcapture/