When a merchant issues a refund, the goal is to get the funds back to the customer as quickly as possible. Over the past few years, card issuers have inserted themselves into the refund process. Their involvement not only speeds up refunds but further prevents unnecessary chargebacks. 

This is good news for businesses. The refund changes make the process visible to cardholders and their banks. Card issuers like Mastercard fill in the gaps in the refund process which allows miscommunication and friendly fraud to happen. 

What is a Refund Authorization? 

Refund authorizations allow card issuers to decline refunds. More importantly, they treat refunds as any other transactions. What this looks like is a refund will show up on a cardholder’s statement while it’s processing. 

Previously, refunds did not appear on cardholder statements until they were finalized, which could take at least a week. 

What is the Mastercard Refund Authorization Mandate? 

Major card issuers adopted refund authorization mandates, but Mastercard presented a model that is easy for businesses and customers to understand. 

Mastercard rolled out their refund authorization mandate in 2018. One of the major changes is that businesses have only 24 hours to request a refund authorization. 

Prior to the mandate, Mastercard allowed 15 calendar days for a business to file a refund. This gap in time caused issues and chargebacks as banks and cardholders were unable to verify if a refund was processed. 

The 24 hour turnaround time for refund authorizations allows Mastercard to authorize refunds in real-time and get the process started as fast as possible. 

Why Would a Refund Not be Authorized? 

Businesses are expected to follow the 24 hour mandate when issuing refunds. Although this may be more of a hassle than previously, refund authorizations can protect merchants from losing funds. 

Sometimes a customer account can’t receive a refund because it’s closed or frozen. There are also some accounts that don’t support refunds, such as prepaid cards. 

Refund Authorizations Reduces Friendly Fraud 

Prior to refund authorizations, banks had no way of knowing a refund had been issued until it’s been finalized and the funds were back in a cardholder’s account. 

This discrepancy leaves room for cardholders to file an additional chargeback against the merchant. Customers can claim that they’ve never received a refund and file a dispute with their bank. Once a bank files the dispute then the business gets hit with a chargeback. 

A chargeback happening at the same time as a refund is a “double-refund chargeback”. These can be done on purpose by a customer and would fall under friendly-fraud. Other times, it can be a mistake. 

Either way, double-refund chargebacks harm businesses. Merchants lose revenue through double-refunds and chargeback fees. Refund authorization mandates prevent these situations by showing issuing banks that refunds are being processed.