Visa and Mastercard Return Authorization Mandate


Visa and Mastercard, are changing the way refund transactions are handled. The mandate was first introduced last year on specific merchants; however, it was implemented to all merchants in April 2019 and applies to merchants who are doing business in the United States and Canada.

In simple terms, the rules shorten the timeframe allowed for merchants to refund transactions.

Let’s assume a customer submits a return for a transaction involving a Visa or Mastercard-branded card. As a merchant, you’d first provide the buyer a return transaction receipt or other official notification that you will process a refund. Previously, you had up to 15 calendar days to submit that return transaction to your acquiring bank for clearing. This delay caused some cardholders to think that the refund may not have been issued, so they do a chargeback to the merchant, which would mean the funds were immediately put back onto the cardholder’s account. In the meantime, the issuing bank sends this information to the processor who then takes the funds out of the merchant account. The Merchant then has to “dispute” the transaction by providing ample documentation that the sale was valid or that the refund had been issued, but the cardholder became impatient with the timeframe.

Under the new regulations, you need to initiate authorization requests for product returns within 24 hours. Now, the cardholder will be able to see the return authorization immediately on their online statement the same way that they see a sales transaction. Adding this new mandate should reduce customer service inquiries to merchants from cardholders looking for their refund as well as reduce the number of cardholder chargebacks. Cardholders can follow the return authorization from a pending transaction to the time that the funds deposited into their account. This applies to both credit and debit/check cards.

Additionally, authorizing a refund enables the issuer to validate the cardholder account, decline potentially fraudulent cards, and minimize chargebacks if the account does not exist or is closed.

Implementation of this new mandate will be a benefit to merchants as the number of chargebacks should be reduced. If merchants are using terminals, software, or other methods of processing, their systems will need to be updated to accommodate this change.

Some critical dates coming up:
  • April 14, 2020 – after this date, issuing banks will be able to file chargebacks against return transactions that do not include a purchase return authorization from the merchant. In this scenario, the merchant will not be able to “dispute” the chargeback, meaning that they will be out the funds.
  • April 17, 2020 – Issuing banks must display pending refund authorizations on their customer’s online bank statements, including apps. This provides cardholders with the ability to track their refund from pending status to deposit.
  • July 1, 2020 – Non-Compliance fees will go into effect. At this time, the amount of these fees has not been disclosed. Merchants must upgrade their processing terminals, software, etc. to avoid incurring these additional fines.

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