The major credit card networks — Visa, MasterCard, Discover and American Express — join together to set the fees for Interchange. As part of this process, every six months they review those fees and adjust them as needed. One of the fees that Visa has is the Misused Authorization Fee.
On October 1, 2009, Visa introduced its Misused Authorization Fee to the world. This fee is assessed for authorizations that are not either settled or reversed within certain timeframes, and impacts merchants accepting Visa cards for their payment processing. Visa refers to these as “ghost authorizations.”
Visa defines a misused authorization as:
“Authorizations that are not followed by a matching clearing transaction (or in the case of a cancelled or timed out authorization, not properly reversed).”
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 when credit card processing.
Visa explains that with this added fee they are trying to reduce what they call “ghost authorizations” because those authorizations restrict a cardholder’s ability to buy and increases declines.
To comply with the new processing guideline and avoid the misuse fee Merchants need to follow a few guidelines. 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.
As an alternative method to verify cardholder data, Visa introduced Account Verification which allows 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 charges for this service but MasterCard doess not.
For MOTO and e-commerce merchants who use payment gateways there may be some changes to how they perform Auth and Capture type of transactions, especially if they Authorize the transaction at order time, and later Capture or Complete the transaction when they ship a product. Or more typically, perform a $1.00 authorization first with AVS and CVV2 data, and followed by an authorization for the total amount of purchase.
Many payment gateways may or may have authorization reversals, authorization voids, or other transaction types – you will need to work with your gateway to identify what transaction types need to be performed to “reverse” an authorization for a product that you do not ship. Or if your practice is to re-auth after 10 days, and let the original expire – you will be hit with the fee.
Visa also supports a new transaction type called Account Verification – which is a $0.00 authorization – which they hope merchants will used instead of misused authorizations.
For processors and large merchants with direct connections to Visanet or Payment Gateways – These entities will want to verify that their reversal processing addresses credit reversals in the time-out scenario.
Host Merchant Services makes this fee clearly visible on our statement and we do not mark up the fee in any way.