Visa Purchase Return Authorization—the Scheme’s Latest Mandate—Impacts How You Process Returns
Another month…another mandate from the card schemes. This update, the Visa purchase return authorization mandate, is already available for some merchants in the US and other regions, with a global rollout projected for April 2020. What’s in the new ruleset, though?
In this article, we’ll wade through the details concerning the new mandate, and see how it could impact your business.
Visa Purchase Return Authorization: Explained
For decades, processing a typical card return involved simply refunding the amount from a transaction, then submitting that information to the bank. Now, though, Visa is in the process of introducing new requirements for conducting a return.
The Visa purchase return authorization mandate establishes an authorization requirement for a return transaction (also known as a cardholder refund). With this update, you’re required to seek authorization to process a return. This is essentially the same procedure of seeking authorization to conduct an initial purchase…just in reverse.
Visa prescribes the same process for card-present and card-not-present refund requests. You also do not need the original receipt; if the customer has the card information, that will suffice.
When a customer requests a return for a card-not-present Visa transaction, you’ll need to follow these steps:
- First, verify the transaction was processed using a Visa card.
- Enter the return information into the POS system.
- Submit an authorization request to the issuing bank.
- Upon approval, finalize the refund and conduct the process as usual.
Visa mandates that acquirers process a purchase return authorization for each individual return request submitted to a merchant meeting defined regional and sales volume thresholds. Not all merchants are required to comply yet, though. Visa originally set October 2018 as the beginning of the rollout period, but here is the current compliance schedule as of this writing, based on region and sales volume:
|Region||Annual Return Volume||Effective Date|
|United States||> USD $10 million||October 2018|
|Canada||> USD $5 million||October 2018|
|Central Europe, Middle East & Africa||> USD $1 million||October 2019|
|Asia-Pacific||> USD $1 million||October 2019|
|Region||Final Effective Date|
|United States||October 2019|
|Central Europe, Middle East & Africa||April 2020|
|Latin America||October 2019|
Visa will impose new fees for noncompliance effective July 2020. This will include unauthorized returns submitted for settlement, which will be reported as Visa Zero-Floor Limit non-compliance transactions. These transactions could be liable for chargebacks under the “Authorization” dispute category.
Why is Visa Doing This?
The Visa purchase return authorization mandate is similar to Mastercard’s action regarding their refund authorization mandate. The fundamental goal is to create a level playing field for merchants, banks, and cardholders. Yes, it’s true that the new rules add additional responsibilities for you to manage. That said, it may also reduce your exposure to errors and chargebacks.
Visa explained their rationale with the outline of the new mandate:
The card scheme suggests the Visa purchase return authorization mandate will benefit merchants in several ways. For instance, the policy is expected to:
- Reduce the volume of Visa customer inquiries: Providing indication that a return is authorized gives cardholders real-time accountability regarding refunds. This will, in turn, improve the overall customer experience and lead to higher satisfaction and confidence.
- Enable real-time validation: Requiring authorization before a return means both you and the issuer are taking a moment to ensure funds end up in the right account. It prevents funds from getting lost due to account mismatches or closures.
- Minimize chargebacks: Authorization eliminates the possibility of disputes caused by errors in the return process. In addition, there’s no more risk of so-called “double refunds” occurring when a merchant refunds a transaction, only for the bank to then file a chargeback.
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Will Visa Purchase Return Authorization Work?
It’s difficult to say one way or the other.
On one hand, the new procedures will likely have some impact on overall chargeback filings. If merchants are required to seek authorization before conducting a refund, there’s much less risk of the issuer mistakenly filing a chargeback after a refund has already been issued. This is a common concern, and is known to cause problems for merchants.
At the same time, we know that anywhere between 60-80% of all chargebacks are friendly fraud. In these cases, a buyer files a claim that doesn’t hold up to scrutiny. For example, let’s assume a buyer completes a purchase. The customer later experiences buyer’s remorse, but unfortunately, the timeframe allowed by the merchant to return the item passed. The customer might file a chargeback, claiming the purchase was unauthorized, or the item didn’t live up to expectations.
This is why we call the practice “friendly fraud.” Although the customer never intended to file a chargeback at the time of purchase, the result for the merchant is the same as any other fraud attack: lost revenue, lost merchandise, and higher fees. Other bad actors can engage in deliberate chargeback abuse; “cyber-shoplifting” describes the pre-meditated practice of completing a purchase with the intent to file a chargeback.
The Visa purchase return authorization mandate can’t do anything about friendly fraud or cyber shoplifting. Since these represent most chargebacks, the impact will not be as significant as one might think.
There’s also the fact that, since you’ll be submitting more authorization requests, you’ll probably pay more in authorization fees. Many processors charge a fee every time your POS system connects to the network to request an authorization. Now you’re going to be required to pay those authorization fees not just for sales, but for every Visa return you conduct, too.
So, while Visa acknowledging the need for return and chargeback reform is a step forward...this particular step won’t ultimately change much.
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