972.415.3450 or 512.694.9146 Sally@PaymentOperationsGroup.com

Right now, many merchants are facing an issue they never thought to plan for…. Issuing Banks are declining refunds sent to cardholders by merchants. Sometimes even providing decline reason codes like ‘Insufficient Funds’ which make so much sense, eh?

Cardholders, Brands, Banks, and Merchants are all working on chargebacks right now, although not from the same position. Visa recently lowered its chargeback threshold for Excessive Chargebacks from 1.00% to 0.90% but they didn’t leave merchants without tools. Issuers and Brands alike, want to make sure cardholders have the highest possible ‘available to spend’ limits and have opened up a type of real-time refund approach that allows merchants to immediately send a Refund Authorization letting consumers and Issuers know that money is on the way. Merchants are highly interested in this process as they attempt to refund to prevent a chargeback and stay beneath that lowered chargeback ceiling. And here we are in ‘Chargeback Season’ where EOY sales bumps, disgruntled buyers, and holiday shopping regrets are driving disputes upwards across the ecosystem.

So what happens as these forces converge? Refund authorizations are being declined. Not all, but enough. Merchants are scrambling to understand this issue, Customer Service teams are talking faster than ever, Acquirers are trying their hand at repair, Consumers are frustrated, and Fraudsters are gleefully rubbing their hands together. But it is merchants who are between a rock and a hard place.

The Brands are definitely aware and are probably planning furiously to address the issue. Acquirers are utilizing interesting paths to resend declined refunds via ‘old’ pathways to get them out the door. Merchants are the hardest hit and are turning to other methods such as check refunds to cover the consumer.

There are a few things merchants need to be aware of, however. The basic message here is that not all last-minute process changes are as effective as a fully thought-out approach to this new normal. You should know the options and build procedures to mitigate your potential losses as you deal with this issue.

First, some Acquirers are not yet offering Refund Authorizations so you may not be having a problem…yet. Some Acquirers are allowing merchants to choose their refund path via contract change or tran code specification. Make sure you choose the path that’s right for your business. If you need refunds to go out fast, go ahead, just be aware. Some Acquirers are trying that Refund Authorization and if it declines, they are not collecting the money from the merchant. In all cases, it is important that you contact your Acquirer to find out how they are handling this change.

And while you are on the phone with your Acquirer, find out how your systems and staff can confirm the condition of a refund at any given time. Is the Acquirer debiting you for every refund and then issuing miscellaneous credits to your merchant account under separate cover?  Is your Acquirer failing to draft all refunds from your daily deposit? This information is critical because, bottom line is the Bottom Line. If you got a debit for a refund and the money never comes back to you, you can be fairly sure the refund worked. If you never got charged for the refund, chances are, the refund failed.

Next up – information on each transaction is critical. Through every stage of the transaction, be sure to update information in your CRM systems so that Customer Service teams can confirm the status of the refund with their callers. If you have received a decline for a Refund Authorization, place a note on the customer’s account. Include whether the transaction is being re-routed for another try or if another path has been triggered. Update those notes regularly and build your processes around those updates. Does it take your company until EOM to reconcile refunds? Remember to systematically add notes at that time and tell your teams when to expect those updates. Using a different path to refund? Add those expected timelines to your CRM notes as well.

Speaking of Customer Service teams, let them know what is going on in the Payments Ecosystem. Explain the path to success for these failed Refund Authorizations and let them discuss this openly with your customers. There is no ‘Blame Game’ here – Just the facts. Communicating with cardholders is the most underutilized tool in a merchant’s arsenal – time to break it out!

While we are here, remind CS Teams that there is a fraud path where a caller asks for the refund to go to a different card so they can fill their own cards after having used someone else’s for the original sale. A positive AVS response, card type verification from a BIN list (is this a gift or pre-paid card when the other one wasn’t?), and fraud tools can be used to prevent this type of fraud but remember, your staff is the most effective barrier at this point.

Arm your other teams as well. Your groups responding to chargebacks need to have access to information to prove your case to win back those chargebacks. Knowing that the Refund Authorization declined is informational to the chargeback refutation documentation. More importantly, access to copies of the front and back of the replacement refund done via check is needed by these response teams. You will be getting chargebacks so do what you can to reduce financial losses due to dual remittance of a single sale.

Remember that refunding to a different card or via check or via store credit or via S&H Green Stamps ™ won’t prevent the chargeback. Track your attempts and remember this is not long term. Count the attempt as a success as you evaluate your paths because it would have been successful if the Refund Authorization hadn’t declined. Track the BINs which are causing the most harm to your process and report this regularly to leadership and your Acquirer. Keep your eyes open for a solution. Reach out to your trusted providers, your processors, your gateways, and your merchant allies. Solutions are coming so be ready.

Payment Operations Group is a consultancy of Payment Professionals who ran away from home to join the circus. But seriously, if you would like to pursue a Strategy for your processing future or any payment engagement at all, contact information is provided below.

Payment Operations Group, LLC
Payments…Navigating, Educating, Strengthening.

Christine Wade

Sally Baptiste


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