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New Requirements for Issuers and Merchant Acquirers – Automatic Updates for Cards-On-File

New Requirements for Issuers and Merchant Acquirers – Automatic Updates for Cards-On-File
Posted: May 25, 2016
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Author: Lou Grilli

Effective October 1, 2016 for Visa issuers and acquirers, and October 14, 2016 for MasterCard issuers and acquirers, a new capability must be supported for maintaining merchants’ cards-on-file. The problem it addresses will help merchants, issuers, and most importantly, the cardholders. When a cardholder enters payment credentials into an airline’s website, for example, and then clicks the “save this card for later use”, but the card expires and reissues in between vacations, the cardholder is inconvenienced and has to rekey all of the data, possibly choosing a different card. But when the cardholder enters payment credentials into an important recurring biller, such as the power company, and expects the bill to be paid automatically on time each month, but the card is reissued and the next monthly authorization fails, then it can be much more than an inconvenience. It could mean having late fees assessed, or worse, having service turned off.

This became somewhat of a headline recently as issuers reissued chip cards to replace the mag stripe only cards, causing huge numbers of authorization fails for online merchants and recurring payment billers.

Visa and MasterCard have come up with similar, compatible schemes to resolve this. Visa calls it Visa Account Updater (VAU) and MasterCard calls theirs Automatic Billing Updater (ABU). They both work like this: The issuer submits a file with updates to cardholder accounts. These updates include card expiration, card reissue due to loss or theft, account closure and change of product type necessitating a reissue. For recurring payments, a few days prior to the charge, the merchant submits the account numbers to be billed, to their acquirer, as an inquiry. The acquirer submits the MasterCard accounts to the ABU and the Visa accounts to the VAU. These systems process the inquiries and return any updates or changes through the acquirer to the merchant. The merchant then must update their cards-on-file accounts before requesting authorization for billing.

All three parties benefit from these services:

For issuers, they will see an increased chance that the same card will be used, instead of prompting the cardholder to use a different card. Also, it reduces the negative impact of card reissue or product changes.

For cardholders, it ensures payment continuity and convenience and reduces disruptions during the payment process.

For merchants, it improves the approval rate for recurring and account-on-file transactions. And as merchants move to replace actual card numbers on file with secure tokens, this process simplifies the token mapping to accomplish the bulk update.

What are the requirements?

Issuers, and their processors, must enroll their credit and debit Bank Identification Numbers (BINs) and start submitting updates for them this October.

Acquirers must enable sending, receiving and processing the inquiries and responses; register each merchant that will be participating (it is not mandatory for all merchants), and be prepared to take action for any updates, which includes ensuring that the merchant’s card-on-file is updated prior to authorization. This last step can vary by merchant.

Keeping payment information up to date is costly and time consuming. Outdated account-on-file information can lead to declined card transactions and cardholder inconvenience and possibly service cancellation. Come October, the goal is to minimize the inconveniences, and make it simpler for merchants to stay on top of expiration date changes and unpredictable account information changes.

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Lou Grilli

Lou GrilliLou Grilli

Lou is the Director of Payments Strategy at Trellance and is responsible for providing leadership to the organization for emerging payments and industry trends, as well as managing the product portfolio.

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