What is one consequence of having a floor limit in transaction processing?

Having a floor limit in transaction processing establishes a predetermined threshold value for transactions, which helps determine whether a transaction must receive additional authorization before it is completed. If a transaction exceeds this floor limit, it usually requires authorization from the issuer, which can slow down the transaction process and create additional steps within the approval process.

When a floor limit is in place, it can lead to an increased risk of fraud. This is because merchants and processors may feel they can approve smaller transactions without verifying customer identity or payment authenticity, potentially allowing fraudulent activities to slip through the cracks. The efficiency in processing lower-value transactions could inadvertently provide more opportunities for fraud to occur, as the necessary checks and balances that discipline higher-value transactions become less stringent.

Thus, while a floor limit can streamline some aspects of transaction approval, it may inadvertently elevate the potential for fraud if smaller transactions do not undergo careful scrutiny or verification, highlighting the importance of balancing efficiency with robust fraud prevention measures.