18 Oct What Visa’s New Purchase Return Authorization Mandate Means for Your Business
On October 19th, Visa’s new Purchase Return Authorization mandate took effect. Currently, authorizations are required for a majority of purchases, but NOT for purchase returns—this new mandate is going to change that. Moving forward, merchants will be required to authorize returns, just as they would a purchase. But how will this mandate impact your business’s established procedures? What will you need to do differently?
Here’s what you need to know:
Why is Visa introducing this new rule?
First off, know that this mandate is designed to increase transparency, protect merchants, and improve the customer experience. Requiring a purchase return authorization with refunds will:
-Increase visibility of pending refunds
-Reduce unnecessary inquiries and disputes
-Improve the cardholder experience
How is this process different than the current return process?
Currently, a refund happens primarily between the merchant and the acquirer. Once a merchant agrees to issue a refund, they submit the refund when they batch out, the same way other transactions are submitted. The refund itself can take 24-48 hours, and the consumer is typically unaware of the refund status during that time. This can lead to confusion and unnecessary chargebacks, as some consumers may believe a credit was not issued at all, when the credit was issued but is still pending.
Under the new mandate, merchants will receive an authorization on a refund, meaning their point of sale will dial out, and they’ll receive a response. This change means cardholders will now see pending refund authorization requests right away, the same way they would immediately see a pending charge. Settlement of the refund happens as normal (24-48 hours). This is a win-win situation for both merchants and consumers. Merchants will receive less calls and emails asking, “Where is my refund?” and customers will have access to transparent information on demand.
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Here’s how the new process works:
1. Cardholder requests refund
2. Merchant sends PRA to acquirer
3. Acquirer forwards request to Visa
4. Visa sends request to issuer
5. Issuer displays “pending” in merchant’s account
6. Cardholder receives refund
Do merchants need to take action before October 19th?
Merchants will want to reach out to their processor to confirm what their procedure is for forwarding the purchase refund authorization request to Visa. If you have multiple acquirers, you will need to reach out to each one, as they may have different processes. Some processors will require no additional action on the merchant’s part besides the authorization of the refund, while others will require you to notify them every time a refund is processed. Some processing devices will not support purchase return authorizations, so it’s important to seek out this information now.
What do I do if a refund is declined?
While most refunds will receive an approval response, the Purchase Return Authorization mandate does mean that it’s possible for an attempted refund to return a decline. Merchants might receive a decline response on a purchase return for a number of reasons, including:
- Card expired
- Card reported lost or stolen
- Invalid account number or type
- Invalid PIN
- Authorization for original transaction was declined
If you receive a decline response on a purchase return authorization, first review the decline reason code and evaluate what actions to take. Then, review that information with the cardholder. You should only request an alternative payment method to complete the refund if the card used for the original transaction is no longer valid. If no alternative method is available, you may provide the refund in cash, check, store credit, etc.
It’s important to note that if a return isn’t made on the original card, or with an authorization, you may be liable for potential fraud or chargebacks. Be sure to document ALL communications in case of additional cardholder inquiries or disputes. If the original transaction is disputed after a refund to an alternative payment method, the merchant must provide clear proof of the refund in the dispute response.
What happens if a purchase return is NOT authorized?
Some merchants process on devices or gateways that support “Force Sale” functionality. If a refund is force-posted after a decline, that refund will be subject to increased fees. And compliance with the mandate will be even more important in the future . . .
Starting April 14, 2020, issuing banks will be able to dispute return transactions that were not authorized by the merchant.
And starting July 1, 2020, Visa will implement “Visa Misuse and Zero Floor Limit Fees” for non-compliance. These fees will be applied to settled refunds that were not authorized.
Final Thoughts
Consumers expect on-demand information, and Visa’s Purchase Return Authorization mandate is designed to cater to this shift in attitude. As always, merchants should be vigilant and carefully document refunds to ensure they’re protected in the case of a dispute.
Still don’t feel prepared for the mandate to take effect? Does your point of sale not support purchase return authorizations? We’re here to help. Please don’t hesitate to reach out to us with any questions.
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