Previously, cardholders were in the dark about whether their purchase return requests had been accepted or denied. Visa is introducing this mandate to drive transparency in the return process for cardholders.
Purchase returns are part of every business. However, the return process is often unclear for customers and can expose merchants to fraud. Visa® created the Visa Purchase Return Authorization Mandate to bring transparency to the returns process. This post will explain the new mandate and outline how merchants can comply.
What is a Visa Purchase Return Authorization?
The Visa Purchase Return Authorization is a new directive that requires merchants to request authorization for every return transaction (cardholder refund) that they make. This mandate is similar to the process of seeking authorization from the card issuer when processing a purchase only that it occurs in reverse.
Why is Visa Introducing This?
Visa is introducing this mandate to drive transparency in the return process for cardholders. Previously, cardholders were in the dark about whether their purchase return requests had been accepted or denied. It often took between two to five days for information about purchase returns to be reflected in the transaction history of the cardholder. Conversely, information about purchases is updated instantly, which creates an imbalance. Visa purchase return authorizations will correct this imbalance by updating cardholders about return transactions in real-time. On the merchant side, purchase return authorizations are expected to provide the following benefits:
Improved customer satisfaction and experience because cardholders will have real-time access to information about the status of their returns, which eliminates uncertainty.
Reduced purchase return related customer service inquiries as a result of access to real-time information about the status of their refunds. This will improve the overall experience of all customers due to increased access to customer service representatives.
Enables real-time validation of cardholder accounts, making it possible to flag and decline fraudulent purchase return requests and cards.
Reduced chargebacks related to the return request because the return authorization will be displayed in the cardholder’s transaction history. This reduces friendly fraud and duplicate refunds.
Are Merchants Required to Support This?
Yes, all merchants are required to request authorization for every return transaction. If you don’t comply, you will be in breach of Visa’s rules, and non-compliance might lead to an increase in the fees that you pay, such as Zero Floor Limit Fees and Visa Misuse Fees. Additionally, you are more likely to receive chargebacks for carrying out transactions without authorization.
What are the Requirements for Merchants?
No special equipment is required. Merchants are only required to comply with the mandate. The following steps will ease the transition process:
- Ensure that your Point of Sale (POS) system is capable of requesting purchase return authorizations and receiving responses. Update it if necessary.
- Analyze your customer refund workflow and update it to include the process of getting purchase return authorizations. This ensures that your employees do not forget to seek authorization.
- Train your employees on how to request authorizations so that their skills are up to date.
What is the Procedure for Submitting a Purchase Return Authorization Request?
Here are the steps that you should follow when a cardholder makes a purchase return request:
- Confirm that the purchase was made using a Visa card
- Key-in the purchase return details into your POS system
- Initiate an authorization request to the cardholder’s bank
- Wait for a response to the authorization request
- If an approval response is received, complete the refund process as usual
What is the Meaning of the Responses Received After Requesting a Purchase Authorization?
There are three possible responses: ‘approved,’ ‘no reason to decline,’ or ‘declined’ with a reason. These responses fall into two broad categories: approved or declined.
- If an approved (code 00) response is received, process the refund and credit the cardholder.
- Similarly, if a no reason to decline (code 85) response is received, proceed with the refund process and credit the cardholder’s account.
There are several reasons why a purchase authorization might be declined. They are as follows:
- The account number or type provided is invalid (code 14). Inform the cardholder that the account number is not recognized by the bank and request for an alternative Visa card or refund them using other methods (cash, gift card).
- The account type is invalid (codes 39, 52, or 53). Request the cardholder to enter the correct account type (credit or debit) into the POS.
- The card has expired (code 54). Let the cardholder know that the card has expired and request for a replacement card. If there is no replacement card or alternative Visa card, refund them using other methods (cash, gift card).
- The PIN is invalid (code 55). Request the cardholder to re-enter their PIN.
- Declined without reason (all other decline codes). Request for an alternative Visa card or refund them using other methods (cash, gift card).
How Can Merchants Lower the Amount of Declined Responses?
Declined responses happen when there are user errors such as an invalid PIN or an invalid account type. Merchants can reduce these errors by encouraging cardholders to input their details correctly before they send purchase return authorization requests.
A declined response can also be received because a card is invalid. Invalid cards are those that are expired, have been reported lost or stolen or discarded prepaid cards. The number of these cases can be lowered when merchants first ensure that cards are valid before requesting authorization.
Are Merchants Required to Swipe, Tap, or Dip the Card Used in the Original Transaction Before Requesting Authorization?
No, the original card does not have to be represented. Merchants can send authorization requests by scanning the original purchase receipt, which will automatically bring up the card details.
What is the Process of Submitting an Authorization Request When the Card is Not Present, and the Receipt Barcode is Scanned?
Merchants should input the PAN and expiration date of the card in their return authorization request using POS entry mode 01.
Should Merchants Change Their Return/Refund Policies Because of These New Regulations?
No, merchants do not need to change their refund/return policies as long as they are legal and are shared with customers upfront. The only thing that merchants need to change is how they process refunds by requesting a purchase return authorization.
What Are the Changes Happening to Visa Purchase Return Authorization in 2020?
When the Visa Purchase Return Authorization mandate was initiated, there was a schedule for merchants in different regions and return volumes to adopt it. Here are important dates that you should keep in mind.
April 2020 - All merchants are required to have adopted the mandate regardless of their region or return volume.
14 April 2020 – Issuing banks will have a right to initiate chargebacks on purchase return transactions where merchants failed to obtain authorization.
1 July 2020 – Visa will include return transactions in the assessments for Zero- Floor Limit and Authorization Misuse Process Integrity fees.