Until recently, Visa refunds occurred offline. What does that mean, exactly?
Well, when you issued a customer a refund, it would occur with, presumably, no issues. An offline refund isn’t authorized right away, so as a business issuing the refund, you don’t know whether it successfully refunded until later, when you settled your transactions for the day. Similarly, from the cardholder’s perspective, he wouldn’t know whether he successfully received a refund or not until later.
As of October 2019, all businesses in the United States (as well as Canada) must issue Visa refunds online.
How Do Online Refunds Differ?
Offline credit card refunds are simple on the surface. A business issues the refund with a click of a mouse, or the swipe or insertion of a card and it’s done; authorization occurs later to confirm whether the card is still valid or if funds can actually be put on it.
Online credit card refunds have more details. At the time of the return, authorization occurs. This validates the cardholder’s account, and if the refund declines or fails, it will return one of many possible decline codes. The most common reasons for refunds to fail include the card being closed, lost or reported stolen, the credit card company asking the business to not honor the card and invalid card data entry.
While online refunds may require more steps up front to make a successful refund, it poses advantages for both the business and the cardholder.
The Benefits of Online Refunds
Visa’s intent for the shift from offline to online refunds is to improve the return process for all parties involved. For the cardholder, offline refunds don’t immediately appear on her credit card statement until the business batches out, typically at the end of the day. With online refunds, the cardholder’s credit limit is updated immediately, giving real-time access to her banking information.
For the business, it allows them to decline potentially fraudulent cards, minimize possible chargebacks if the account does not exist and provide better customer service.
Lastly, as a card issuer, Visa will be able to offer better communication with its cardholders around returns, such as text alerts.
Additional Card Brands
As you might have guessed, this change is on the horizon for additional card brands, too. MasterCard recently announced a new requirement that switches from offline to online refunds starting April 2020. We can expect other card brands, such as Discover and American Express, to follow suit.
It’s important to note that, also starting April 2020, Visa plans to start enforcing online refunds and may initiate chargebacks on return transactions when businesses fail to obtain authorization at the time of return. Businesses will be responsible for ensuring that their point-of-sale systems will authorize returns. It’s likely other card brands, like MasterCard, will enforce online refunds in a similar way.
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