Just as you are required to obtain an authorization that gives approval to process a sale, starting April 2020, for Visa and MasterCard purchases, merchants will be required to obtain an authorization for a return/refund.

Why is this happening? What are the benefits of authorizing a return?

Historically, returns and refunds did not require an authorization. Returns and refunds were simply processed when a batch was settled. 

Authorizing a return has multiple benefits for the customer, as well as for you, the merchant. 

Customer Benefit: the main benefit will be the clarity customers have into the refund being issued. The new return authorization process will improve customers’ overall experience and help facilitate customer service inquiries related to the status of refunds.

Merchant Benefit: The new return authorization process will give merchants the ability to check the validity of the card to process the refund. Merchants will also receive an approval or decline response code at the time the refund is being issued. This process will, in turn, reduce chargebacks and fraud by providing proof that the refund in now in progress.

Some Response Codes include:

Approved

Code 00 | Approval
Finalize the refund and credit the account.

Code 85 | No reason to decline
This can also be considered an Approval. Finalize the refund and credit the account. 

Declined

Code 14 | Invalid account number or account type
The account for this card is not recognized. Tell the cardholder that the bank doesn’t recognize the account. Request an alternate card of the same brand type (If the refund is on a Visa, then request an alternate Visa card. If the refund is on a MasterCard, then request an alternate MasterCard.)

Code 57 | Transaction not permitted to cardholder 
This response code could be triggered due to a pre-paid card that doesn’t accept refunds. Request an alternate card of the same brand type for payment, or a different form of payment such as cash. 

When do these changes go into effect?

The Visa and MasterCard Purchase Return Authorization requirement is mandated by April 14, 2020.

As of April 14, 2020, issuers (the bank or credit union that issued the credit/debit card to your customer) will be able to initiate a chargeback on a return transaction that does include an authorization.

It’s important to note that the issuer holds the liability for an authorized return sent for settlement. The merchant holds liability for an unauthorized return sent for settlement. 

When can I expect the returns process in my POS software to be updated?

Our next payment gateway release is scheduled for Fall 2019. Within this release will be new functionality that will enable you to obtain an authorization for your returns/refunds through your POS software.

In other words, when initiating a return or refund in your software, you’ll receive a response code as listed above. This process will help provide fraud protection and chargeback prevention as you’ll be able to check the validity of the card being used to process the refund.