Visa Misuse of Authorization

Starting October 1, 2009, Visa will start assessing a 'misuse' fee for authorizations that are not either settled or reversed within certain timeframes. Visa refers to these as 'ghost authorizations'.

In the past, merchants frequently performed a $1.00 authorization only (without settlement) for verification and to retrieve address verification (AVS) and CVV match or mismatch information. Visa explains that they're trying to reduce ghost authorizations because they restrict a cardholders ability to buy and increases declines.

Here is what merchants will need to do in order to comply with the new processing guideline and avoid the misuse fee. Card present authorizations must be reversed within 24 hours that have been submitted in error and/or cardholder cancelled.  For card not present transactions, full or partial authorization reversals must be processed within 72 hours.  Settlement must occur within 10 days of authorization for all merchants except Travel and Entertainment segments, which must clear within 20 days of authorization regardless of transaction date.

Visa has stated that they will be monitoring ghost authorizations and reversal levels to prevent abuse of the system and even levying fines in excessive cases. They've not revealed any thresholds or fine potential details.

As an alternative method to verify cardholder data, Visa has introduced Account Verification which will allow for a Zero Dollar Value authorization request and can include AVS and CVV data. MasterCard has as similar verification process for card not present recurring billing merchants with a $1.00 'test transaction'. Visa is charging for this service but MasterCard is not.

Yet obstacles remain with the implementation of these new changes. Many of the larger processors do not support authorization reversals and some don't have an ETA yet on supporting Visa or MasterCard's Account Verification services.  Many of the the Visa and MasterCard issuers (financial institutions that issue the debit/credit cards) are not able to support these services today. Visa has mandated compliance from all their issuers and MasterCard is expected to follow.

Related blog posts:
Account Verification with a Zero Dollar authorization request

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