Refund Authorizations: Processing Improvements for Refunds

The payments industry is moving to an authorization model for refund processing. Braintree is targeting to release this framework later in the year for select card networks and regions. Once this framework goes into effect, refunds will 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.

Card networks affected

  • Visa
  • Mastercard
  • Discover

Statuses of refund authorizations

Approved refunds

If a refund authorization is approved, the issuer has indicated, in real time, that they will accept the refund and deposit it into the cardholder’s account.

Declined refunds

If the refund authorization is declined, the issuer has indicated, in real time, that the cardholder’s account is not capable of accepting the refund. A refund decline prevents the cardholder’s payment method from being refunded.

Common reasons for declines:

  • Card account is closed
  • Card account is frozen due to fraud
  • Card account does not support refunds (ex. some prepaid cards)

Background

Refund authorizations are intended to help solve two industry challenges:

Cardholder transparency for refunds

Refunds do not immediately appear on cardholder statements, which can cause cardholder confusion and frustration. This confusion can lead to increased refund-related customer support inquiries.

Refund resolution timeliness

Issuers are not required to accept refunds. However, without an authorization framework, it can take days for you to be notified after an issuer rejects a refund. Refund delays can increase the likelihood of cardholder disputes.

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.

Processing requirements

Maintain card network consistency

A refund should only be processed to a payment method if the card network matches the payment method used to complete the original sale transaction. For example, if the original sale was completed with a Visa card, the refund should be processed to a Visa account. However, if the original sale was completed with a Mastercard, you should not initiate a refund to a Visa card, as this is a violation of card network rules.

Braintree’s refund API automatically enforces card network consistency; however, if you utilize detached credits, you must ensure your detached credit matches the card network used to complete the original sale.

If you cannot determine the payment method used to complete the original sale transaction (ex. customer returns a gift they did not purchase themselves), you should refund the customer via an alternate method in lieu of a refund authorization through Braintree.

Common alternate refund methods

  • Cash
  • Check
  • In-store credit
  • Prepaid card

How to handle refund declines

You should first attempt to refund the original sale transaction via Braintree’s refund API. If the first refund authorization attempt is declined by the issuer, you may request an alternate payment method from your customer and initiate a detached credit instead. Be sure to maintain card network consistency when performing a detached credit on an alternative payment method. If the issuer declines the detached credit, or if the customer does not have an alternative payment method, you are permitted to refund your customer via an alternate method instead.

Refund policies

It’s important to note that your refund/return policy still allows you to restrict or refuse refunds, returns, cancellations, or exchanges, provided that your policy outlines this clearly and was properly disclosed to your customer during the original sale transaction.

Integration changes

Current refund workflow

Braintree’s refund API assumes success for credit card, Apple Pay, and Android Pay-based refunds. This means that refund responses indicate the success of the API request itself, but not the overall outcome of the refund. After receiving a refund success response, it’s still possible for the issuer to reject the refund.*

Future refund workflow

Once the refund authorization framework is released by Braintree by card network and region, refund requests will return real time processor responses, similar to the processor responses returned from sale authorizations. In order to properly support this enhanced refund functionality, you will be required to update your integration to recognize refund processor responses. We’ll target to release updates to our developer documentation later this year, once we are closer to launch.

Next steps

Braintree is aiming to release more information on refund authorizations later this year. Keep an eye on our blog and our refund documentation for updates.

Related resources

This section will be updated with links to our developer documentation as they become available.

Questions?

If you have any questions about these changes, please contact our Support team.

*Note: Some Australian merchants already receive real time settlement_declined responses for refunds.

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Tim Whicker Tim is a Product Manager under Braintree's Cards Compliance team. In his free time, he's a tech, music, and design enthusiast. More posts by this author

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