Visa is introducing an authorization requirement for return (cardholder refund) transactions. Authorizing a return enables the card issuer to validate the cardholder account, decline potentially fraudulent cards, and minimize chargebacks if the account does not exist or is closed. The return authorization message is intended to improve the return process by enabling cardholders to view a credit/return on their online banking statement in real time, as well as support other issuer services such as text alerts, in order to improve the cardholder experience and minimize return inquiries.

Merchant Impacts/Benefits

Most Point of Sale (POS) systems were not previously designed to obtain an authorization to return money to the cardholder. Prior to this update, a return transaction was stored in the system until submitted for settlement. With this in mind, below are key items to consider regarding system, device and processing impacts:

Evaluate your internal/external processes to understand the impacts of the update.

Evaluate correct handling of a return transaction response.

• Employee training may be necessary.

POS systems may not currently support obtaining an authorization for a return.

• Supported applications are in the process of being updated. Additional information will be communicated as details and delivery dates become available.
• Merchants on unsupported or third party products need to contact their POS support team to determine what action is necessary to upgrade their system.

This change should reduce the number of cardholder inquiries/claims of credits not processed by you.

Cardholder Impacts/Benefits

Cardholders will be able to view returns in real time. A reduction in the number of incoming cardholder inquiries to understand the status of a transaction is expected which in turn increases transaction processing satisfaction.

Typical Transaction Scenarios

Before :

• Cardholder returns product for credit. When the merchant processes the return the POS would not dial out and just store the transaction in the system. The cardholder is unable to view the return transaction information until after a merchant settlement is processed, and posted by the card issuing bank.

New Rule :

• Cardholder returns product for credit. When the merchant processes the return the POS will dial out and the merchant will receive a response on their POS similar to how purchase transactions work today. The cardholder will be able to view the transaction information immediately in their online account.

In most cases the response from the terminal will be an approval. In some cases a decline will be issued. This is typically when the issuing bank decides it is a fraudulent card, or the account is closed or does not exist.

Merchant Handling of Decline Response

Preparedness of merchants to handle decline scenarios is essential to mitigate operational risks. It is important that merchants are prepared with necessary policies, procedures, and training to be able to handle Visa return decline scenarios, as this is a new function of the POS.

When requesting a return / refund, the cardholder typically provides a receipt or proof of purchase showing the Visa account used to make the purchase. The merchant must first attempt to process a return authorization using the same Visa account that was used for the original purchase transaction. If the authorization request is declined:

• When another Visa card is not available the merchant can choose another form of credit depending on refund policy, including check, in-store credit, bill credit or a prepaid card.
• The merchant may also choose to submit the return for settlement without an authorization (forced-post) if their POS can process this type of transaction.
• The merchant can choose to authorize and process the return / refund on a different Visa account.
• The merchants can also offer cash for refunds.

If a return is not made on the original card or with an approval, the merchant is liable for potential fraud and /or a disputed transaction by the issuer. Failure to obtain a proper authorization for return transactions may increase fee exposure for failing to properly authorize and settle every transaction.

Important Dates to Remember

• October 19, 2019: All merchants in the USA, Canada, and Latin America must send credit return authorization messages.
• April 14, 2020: Issuers will be entitled to initiate chargebacks on return transactions when the merchant fails to obtain an authorization. The issuer holds liability for an authorized Visa return submitted for settlement. The merchant holds liability for an unauthorized Visa return submitted for settlement. Merchants need to ensure their POS will authorize returns.
• July 1, 2020: Return / Refund transactions will be included in the Visa Zero-Floor Limit and Authorization Misuse Process Integrity Fee Assessment. Unauthorized returns submitted for settlement will be reported as a Visa Zero-Floor Limit non-compliance transaction. Authorized returns not submitted for settlement and are not reversed will be reported as Visa authorization Misuse non-compliance and merchants may notice higher fees on their merchant statement.

To learn more about the mandate, or how Electronic Money Company can ease the confusion and pain of merchant services from the beginning through the life of your business, call 505-296-2847 to start a conversation today!