When a customer swipes or dips his/her credit card, a lot of things happen in those few seconds before the sale is approved. First, the Point-of-Sale (POS) Terminal sends the customer’s credit card details to the merchant’s credit card processor. The processor then forwards those details to the credit card networks, who request payment authorization from the cardholder’s issuing bank. The issuing bank validates the card number, checks the amount of funds available, matches the billing address to the one on file, and validates the CVV number if provided. The issuing bank then approves or declines the transaction and sends back the response through those same channels back to the POS system. That response takes the form of what is called an authorization code: a five- or six-digit alpha-numeric sequence. Authorization codes are helpful in resolving certain reconciliation issues, like verifying whether a customer was double charged.
In the past, authorization codes were only generated for sales, but beginning April 2019, Visa is requiring all merchants to obtain an authorization code for refunds as well. Previously, when a merchant processed a return, the POS would simply store the transaction, where it would remain until the merchant settled or batched out their system. This meant cardholders may not see the return in their online banking history for two to five days. Now, cardholders will be able to view pending returns in their account immediately after they happen.
What are the impacts to your customers and to your business?
From a cardholder standpoint, Visa believes this change will improve customer’s overall experience and satisfaction, reduce inquiries related to lack of real-time information about the status of a refund, provide real-time issuer account validation, and minimize related chargebacks.
From a business standpoint, there may not be a big impact; however, it’s important to understand some of these changes as it relates to your fees. If your processor charges a per transaction authorization fee, your total auth fees will increase consistent with the number of refunds you run each month. This fee is typically only between $0.05 – $0.20 per authorization. Most merchants will not be significantly impacted.
If a refund is declined, it most likely means the credit card used for the original purchase is no longer available or valid. In that case, a merchant is welcome to process the refund via a different method. Merchant return transactions are separate from the original purchase request. No reference to the original authorization record is required when processing a return. With that said, this new requirement does not affect a merchant’s ability to establish its own refund/return policies, including the ability to refuse or restrict returns, so long as the policy is compliant with applicable law and is disclosed to the customer at the time of purchase.
Most internet connected POS systems will update automatically to support this change. If your terminal is connected to a phone line, you may need to complete a manual download to enable this feature. MSP Consulting is contacting our clients who we know will require a manual update to facilitate. Beginning April 14, 2020, issuers will be allowed to initiate chargebacks on return transactions if the merchant fails to obtain a valid authorization, so it is important that your POS system is up to date.
If you have any questions about this mandate or how it affects your business, please call our support team at 913-890-4900 or email email@example.com for more information.