What’s New in Refund Processing (and Why It Matters)

As a retailer, you have may have heard about recent Visa-driven changes around how a business processes refunds online. Changes to how your business operates, especially when it concerns payments, can be daunting.

To start understanding how these changes will affect your business, there are a few pieces that you should focus on: 

• The difference between offline and online processing 
• Floor limits 
• What has changed and the impact on your business

Digging deeper into these areas, your business can mitigate the evolution in refund processes so that your operations can always run smoothly and you take payments confidently. 

Understanding Payment Processing 

Online and Offline Processing 

Online and offline processing refers to how the initial transaction is validated. Whenever a transaction is processed, the card issuer — which is the bank that the cardholder has an account with — wants to confirm: 

• The encryption used by the payment terminal matches the issuer’s expectations. 
• There are no signs of the messaging between the card and the terminal having been manipulated. 
• The card is active and valid. 
• The transaction is within the account balance . 

At a high level, the difference is how the transaction is verified: 

• Offline processing allows the powerful EMV technology on each chip card to accomplish three of the four validations on its own. 
• Online processing uses the card network infrastructure to send the transaction to the card issuer for validation and allows the issuer to approve or decline the transaction. 

Offline processing can be a few milliseconds faster because the communication is local — only the terminal and chip talk, instead of the call going all the way to the card issuer and getting a response in return. Because of this, some merchants will choose to support offline processing. The transaction is sent to the card issuer later when the transactions are all batched. 

While offline transactions may be a few milliseconds faster, they increase the risk for everyone involved. These risks include: 

• After a transaction is approved, the retailer could discover that the customer didn’t have enough funds to cover the purchase. This is known as NSF or non-sufficient funds. 

• Fraud may be discovered after a transaction is approved. The card issuer would only notice that fraud had occurred because they didn’t sign off on individual transactions. 

If a store has big lineups and the average sale is only a few dollars, they may say that the risk of offering offline transactions is worth it. With their lineups and low risk per transaction, these retailers are able to justify the reward over the risk. Other businesses with high-margin items in stock, like telecom retailers, would (or should) never consider offline transactions as the risks far outweigh the rewards. 

Floor Limits 

The floor limit is a configurable dollar amount that acts like a switch — any transaction above the floor limit must be sent online. iQmetrix has always supported a $0-floor limit to ensure all transactions are validated by the card issuer, to protect telecom retailers from fraudulent transactions. 

A configurable floor limit is the same technology that is used to determine whether you have to use PIN/​biometric authentication when you tap your card. When it comes to tap, the floor limit acts as a switch between either no verification or cardholder verification is needed.

What’s new in refunds? 

Now that we have dug into the details of offline and online payments, and floor limits, you can see how the Visa-driven changes that affect these areas also affect your business.

Specifically, Visa is driving the change to require all refunds to be processed online. This means that regardless of the floor limit for a sale, the refund itself should be verified by the issuing bank. It might seem like a strange change; why would an issuing bank reject incoming funds? Well, there are two reasons why a refund would be rejected: 

• Fraud. Sudden changes in transaction history, like abnormally large or frequent transactions, are typical signs of fraud. This applies to refunds as much as sales. Whenever it comes to money movement, fraud is a concern. 
• Account is not eligible. Some pre-paid cards may not be eligible for refunds. 

All in all, these changes work to improve security and reduce fraud for your business. iQmetrix has always sent refunds online, however, until recently not every issuing bank was validating the transactions. With these changes, you can expect to see some refunds declined by the issuing bank. You may need to accommodate alternative forms of refund such as gift cards or refunding the funds paid to a different card. Sales associates can help mitigate frustration by sharing high-level details of this process to customers and help facilitate a smooth return. 

In telecom retail, safe transactions — no matter if it’s a sale or a return — are a top priority. Ensuring money movement is done safely protects you as the retailer as well as the clients. 

Want to learn more about effective and efficient payment processing? Discover the whole range of the iQmetrix Payments suite.