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

This change will affect how merchants process refunds to their customers by initiating a purchase return authorization. In the past, when merchants processed a return/refund, customers had to wait several days before they would see the transaction hit their online banking statement. This delay caused some cardholders to think that the refund may not have been issued, so they do a chargeback to the merchant. A chargeback is when the customer calls their issuing bank and disputes a charge. The funds are 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.

With the new mandate, 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.

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.

We continue to see significant changes being implemented in the industry by the Card Associations who are trying to reduce fraud, chargeback activity, and protect cardholder’s information. Merchants may feel the pressure of trying to keep up to date on these continual changes. Metro seeks to be proactive in keeping our merchants informed of these changes via statement messages, newsletters, and blogs. Our goal is to ensure that our merchants are informed and protect from being charged any additional fees.

There are some resources that you may find helpful: