Visa Purchase Return Authorization Mandate

Table of Contents

1. How Purchase Return Authorization Affects Merchants
2. What’s Different about Processing Returns Now?
3. Potential Issues With Purchase Return Authorization
4. What Is a Purchase Return Authorization?

In 2019, Visa rolled out a new mandate regarding how return payments should be processed. The purchase return authorization mandate is now in effect for all merchants doing business in the U.S. and Canada, and details some specific steps merchants must take when processing a return.

The mandate requires merchants to process a purchase return authorization for every return. Prior to this mandate, cardholders would often have to wait several days before a purchase return would hit their online banking statement. During this time, they would receive no updates on the status of the return and have no way of knowing that a return had been processed at all unless they inquired directly with the merchant.

All too often, cardholders get impatient during this waiting period, leading to them concluding that they’re being brushed aside or ignored. Then they file chargebacks, which means that the merchant (who already initiated the refund) will end up giving double the transaction amount back unless they take the time to fight the chargeback and submit proof that they issued a refund.

The authorization messages Visa is mandating for these situations will allow cardholders to follow their progress in real time as they go from pending to processed. This should reduce the uncertainty and frustration that leads to chargebacks. Merchants can also look forward to receiving fewer customer service inquiries about the status of refunds, since customers will be able to check for themselves in their own online banking accounts.

How Purchase Return Authorization Affects Merchants

The successful implementation of this mandate will be a good thing for merchants, who should welcome any changes that reduce the likelihood of chargebacks. Of course, complying with its requirements may involve a learning curve. Your procedures around handling refunds will have to be adjusted, and on a technical level, some point-of-sale systems may not be set up to process return authorizations as separate transactions.

Since the final deadline passed on April 14, 2020, issuing banks have been able to file chargebacks against return transactions that do not include a purchase return authorization from the merchant. Additional enforcement mechanisms (mainly non-compliance fees) went into effect on July 1, 2020. It is essential for any new merchant to understand the requirements of this mandate to avoid unnecessary problems, and for any merchant who hasn't yet brought their business into compliance to do so as soon as possible, lest they face consequences for non-compliance.

What’s Different about Processing Returns Now?

The way things used to work, when a merchant processed a return for a customer, the return transaction was stored in the merchant’s POS system until the next merchant settlement was processed. This is why it could take a few days for returns to show up on the customer’s bank statement. Purchase transactions are dialed out immediately, so they show up as “pending” on the statement.

Under Visa’s new mandate, return transactions will be handled in a manner similar to purchase transactions.

Since customers will be able to see the pending return transaction, they're less likely to file a chargeback thinking that they're not getting the return they were promised. They're also less likely to call customer service with complaints or confusion about the lack of a return payment. Overall, the new process should increase customer satisfaction and reduce chargebacks.

Potential Issues With Purchase Return Authorization

Here’s an interesting thing that can happen when a return authorization is processed as its own individual transaction: The return can be declined. This typically occurs when the card the original transaction was made with expires or otherwise becomes invalid.

Visa has guidelines for merchants to follow when this happens. In most cases, the merchant can simply post the refund to an alternative Visa card or some other payment method.

To avoid risking fees or chargebacks, always seek out and follow the card network’s instructions in these cases.

There is some chance that a declined return could be due to fraud. For example, if a stolen card was used to make the purchase and then a return is filed after the card has been reported stolen, the return may be declined, and sending the return payment to an alternate account might mean sending a return to the fraudster, while still facing a chargeback later. However, this series of events shouldn't be common, since providing an alternate account to send the payment to carries a greater risk of exposure for the fraudster, and they would have to slip in a return request after the card has been reported stolen but before a fraud chargeback has been filed.

Merchants may also see increased charges from their payment processor as a result of this mandate. Many processors charge fees every time the POS system connects to their network, and POS network connections will necessarily increase as a consequence of complying with this mandate.

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