Refund Declined

The payments industry is moving to an authorization model for refund processing. As per scheme rules, refunds should be preceded by authorizations to allow the card issuer to weigh in before you send a refund to a cardholder. Refund authorizations will also appear on cardholder statements in real time, to improve transparency.

What is the Refund Authorization mandate?

Visa, MasterCard, and Discover have released a new scheme mandate known as Refund Authorization (also knowns as Purchase Return Authorization or Credit Authorization). In simple terms, the mandate requires all refunds to first be authorized with the card-issuing bank, just like sale transactions must be authorized. The authorization process allows the customer’s bank to determine if the refund will be approved or processor declined before moving funds. This mandate is an industry-wide change that applies to all processors and merchants that accept Visa, MasterCard, or Discover cards, and is not just limited to Braintree merchants.

Why is this change being made?
With Refund Authorization supporting real-time feedback from the bank, a lot of tedious processes can be avoided in the case of a failed refund. For example, if the customer had canceled their card without notifying your business, you would have still seen a successful refund in the past -- even if the refund were destined to fail on the customer’s side. Moving forward, the refund will be declined in real time if funds can’t be moved to the customer. This gives your business the chance to contact the customer to arrange an alternative. It also avoids any funds being tied up in limbo after being debited from your bank. 

Benefits

With the introduction of refund authorizations, cardholders can see the following benefits:

Improved cardholder transparency

If a refund authorization is approved by the issuer, the issuer should immediately add a pending refund line item to the cardholder’s statement. This pending line item provides real time evidence to the cardholder that you’ve initiated the refund process. This transparency is expected to reduce refund-related customer support inquiries.

Real time refund approval responses

If the cardholder’s account cannot accept the refund, the issuer will decline the refund authorization in real time. This real time response allows you to take immediate action if the refund is declined, such as requesting an alternate payment method in order to reattempt their refund. This allows you to be more proactive in resolving refund-related issues, which should reduce refund-related inquiries.

Reduction in refund-related disputes

By being more proactive, you can increase the timeliness of refund resolutions, which should reduce disputes from cardholders anxious for their refunds.

Handling Declined Refunds:

In cases where the original transaction was valid but the attempted refund has been declined by the customer's bank, you'll first want to check the decline response to see if it's a hard or soft decline. Usually hard declines are flagged with the error 2015 like in the image below.

Open

Soft declines can be reattempted, so the customer may be able to contact their bank (we recommend they ask for Tier 2 support) to inquire about the decline and to ask that they authorize the refund so that you may try again.
 
If their bank is unable to resolve, or in cases of a hard decline, we recommend working with your customer to issue a refund outside of Braintree, such as through store credit or check. When issuing a refund outside of the original payment method, there are a few best practices that we suggest to help prevent confusion and to help defend against a potential chargeback if your customer were to dispute the initial charge:
 

• Maintain an up-to-date refund policy on your site that explains how customers are credited when a refund to the original payment method isn’t possible.

• Communicate with the customer to make sure they’re aware of how they’ll be credited, and keep records of this written communication.

• Keep your own records of any credits issued outside of Braintree. It’s important to keep notes on the refund and to clearly list the reason for the credit — especially clarifying the order number or specific transaction that is being refunded. For example, including the transaction ID in the MEMO of a check, and retaining an image of both the front and back of the check, can help bolster your case if any subsequent chargeback is filed.

 
It is important to note that refunding a transaction outside of the original payment method could result in the customer issuing a chargeback for the original transaction. However, keeping complete records, including documentation linking the credit to the transaction and any written correspondence with the cardholder, can help you defend the dispute in these instances.