MasterCard and Discover Announce New Processing Rules

MasterCard and Discover are modifying their rules concerning the processing of debit, prepaid and gift cards. Specifically, MasterCard and Discover will now require that most merchants support the processing of partial authorizations, real-time full authorization reversals, and balance response transactions.  MasterCard’s rule changes go into effect May 1, 2010, and Discover’s rule changes go into effect April 16, 2010.

The changes are being made because MasterCard and Discover have identified three main areas of concern that cause transactions to decline for customers using debit, prepaid and gift cards:

1. Customers do not always know their available balance on their card.
2. If a customer tries to spend more than the balance available on their card, the purchase is declined, with no option to use the card’s available balance along with another form of payment.
3. If a customer wants to use a debit, prepaid or gift card, and the merchant gets an authorization, but then the transaction is not completed, the available balance on the card is temporarily reduced unless the merchant reverses the authorization.

The following  section hopefully will answer many questions you may have.  Otherwise,  you need to refer to Customer Service of your processor provider.

MasterCard and Discover are requiring that merchants support the following three transaction types for debit, prepaid and gift cards:

1. Partial Approval (or Partial Authorization) — Merchants are required to partially approve a transaction if a cardholder does not have enough balance on their debit, prepaid or gift card.  Also, the merchant must allow cardholders to pay the remaining balance owed with another form of payment. This is called a split-tender purchase transaction.

   Benefit: Prior to implementing partial approvals, a debit, prepaid or gift card with an insufficient balance was declined, often costing the merchant a sale.  By supporting partial approvals, the merchant can turn a potential decline or negative cardholder experience into a completed sale by asking for an additional form(s) of payment to cover a purchase.

2. Authorization Reversal — Merchants are required to reverse an authorized transaction if a cardholder decides they do not want to proceed with the split-tender purchase upon receiving a partial approval. Authorization reversals will free up the available balance on a customer’s debit, prepaid or gift card when transactions are not completed.

   Benefit: By supporting authorization reversals, the merchant restores the cardholders’ available balance, which enables them to potentially make a purchase (within their debit, prepaid or gift card’s balance) at your store instead of a decline.

   Additional Authorization Reversal Questions

• If a transaction has been captured (i.e., an auth capture transaction type), can the authorization be reversed?
  No, authorization reversals can only be performed on transactions that have already been authorized but not captured  (auth only transactions). If the transaction has been captured, then the merchant should initiate a void if the transaction has not settled, or a refund if it has been settled.

• Does this apply to full authorization reversals or partial authorization reversals?
  The requirement applies to both full authorization reversal as well as partial authorization reversals. A partial authorization reversal is applicable for situations where the capture request amount is less than the authorized amount, and the difference will have to be partially reversed. In the case of a partial auth reversal, merchants do not need to do anything; this is done automatically.

1. Balance Response — Merchants are required to print the prepaid card balance on the customer receipt or display it on a customer-facing terminal/POS device/Web page, or both. Prepaid card balance information is made available by the prepaid issuer only for some, but not all, prepaid cards, and support of this requirement is limited to those particular cards.

   Benefit: By supporting balance responses and making the information available to the consumer, the consumer is better informed regarding their available balance on their prepaid cards, and could make additional purchases based on that balance.

   Additional Balance Response Questions

   • Will merchants be required to print the remaining prepaid account balance on both the receipt and display it on the customer-facing POS device or Web page?
     No. Merchants can choose to print the balance, or display the balance to the cardholder, or both.

   • Will the balance be displayed/printed for all debit and prepaid products?
     No. For security reasons, balances will only be returned by the issuer for prepaid cards (and even then, only for select cards) to avoid, for example, printing a customer’s checking account balances. If the”available balance” is present in the record, merchants are required to print and/or display it to the customer, regardless of the dollar amount.

Our thanks to Authorize.net for bringing these issues and their clarifications to our attention.