Expert Tips on How to Prepare for October Visa/Mastercard Release

The world of payment processing is large and complex, with a variety of transaction scenarios. Payment systems play an important role in regulating relationships between acquiring and issuing sides and ensure security throughout the transaction process.
7 min read
1/10/20
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Expert Tips on How to Prepare for October Visa/Mastercard Release

It is no secret that payment networks like Visa and Mastercard release updated regulations twice a year — in October and April. Acquiring and issuing banks then have between three and six months to conform to the new requirements. This period is highly stressful for acquirers and issuers because they need to review the regulations, as well as figure out the impact of these regulations on their business. However, by preparing for these updates in advance, acquirers can lessen the stress of the adoption period.

Examining Requirements

1. Analyze new requirements with your Payment Business Analysis team.
Payment networks work to optimize transaction processing to make it easier for their clients. For example, a network could decide to change its Scheme Fee to accommodate global changes in transactions and internal adjustments in the payment system. While this seems minor, acquiring banks often have complicated fee structures based on a host of conditions, including merchant pricing models, transaction conditions, and card conditions. In fact, the Scheme Fee value may already be included in the acquirer’s existing pricing model. As a result, changes to the fee structure may lead acquiring banks to adjust their rates, despite the fact that those changes do not have a technical impact on the processing system.

2. Assess whether or not your platform is able to support mandatory changes.
In April, both MasterCard and Visa implemented processing changes for refund transactions, which were first introduced two years earlier. Now, both networks require online authorizations for refund transactions before the presentment. For acquiring banks, this is a massive change in how transactions are processed. Before the change, POS terminals had the option to send online authorizations to the payment system alongside the transaction type. But now acquiring platforms must wait until a transaction is authorized by the Payment System in order to process clearing with a refund. This can have ripple effects across a variety of teams, including the POS development team, acquiring processing platform development team, merchant reconciliation team and others, depending on the client’s infrastructure. The change was first announced in 2018 for certain regions, offering acquirers a chance to plan for future changes in their region.

3. Plan testing far in advance.
Payment networks offer simulators that validate the online/clearing/settlement files created by acquiring and issuing processing platforms. These simulators offer an opportunity to run end-to-end testing. Some recent adjustments to payment networks’ articles impact online processing — one recent adjustment updates requirements for mandatory transaction fields. Luckily, Visa and MasterCard offered a simulator that let clients verify that transaction fields were correctly filled. All acquirers had to do was contact the payment network and sign up for a time slot.

4. Automate regression testing to avoid time-consuming analysis. Payment network updates can significantly affect functionality.
As a result, acquirers should implement regression testing covering every production scenario prior to a production release. Normally, development and quality assurance teams focus primarily on new functionality, leaving minimal time before a release to run proper regression testing. This can lead to unexpected failures on your end, which can also lead to financial and reputational losses. At DataArt, we use the following approaches to automate regression testing in preparation for bi-yearly releases:

  • Transaction Sampling: We take transactions from the production environment over the last 2-6 months and automatically obfuscate them. We then process these obfuscated transactions in a test environment. After the test is complete, we ensure that key values are automatically validated by comparing values between production and test environments. This ensures that the system processes transactions identically to how it was processed before the update. Before verification, it is important to consider release changes that could lead to modifications in transaction properties, which either have to be validated manually or require special rules to avoid false positives. In these cases, differences in production values are expected and should be treated as normal platform behavior.
  • Transaction generation: We generate test transactions based on the predefined input requirements. This approach is very effective in testing Interchange Fee calculations, which have a huge variety of requirements, but can be also used for any other transaction processing validation process. By generating test cases based on these requirements, we can cross-verify the test results with the expected outcome, as well as build-out required messages. If a new requirement (like a new transaction type or card product) is introduced, we can easily add a new line with the requirement in the input file and generate tons of test cases based on the new parameters. These test transactions can be rerun as many times as required until you make sure that the processing platform works perfectly.

Example

Let’s examine a recent MasterCard announcement regarding commercial refund transactions based on the above advice. In this case, MasterCard changed the cap rate for the Interchange Fee calculation for commercial refund transactions in Europe from a fixed value of €0.05 to a percentage value of 75% to 85% of the retail rate.

Mastercard Refund Transactions

This change is particularly relevant for acquiring banks, which process domestic and intraregional transactions in Europe.

1. Analyze the new requirement with your business department.
Interchange Fee changes are related to Merchant Pricing Models. Acquirers may use one of several standard pricing models, including Blended and Interchange++, or an entirely different model depending on their agreement with the merchant. As a result, the impact of this change on the current merchant commission settings will differ.

Merchant Pricing Models

For a Blended Pricing model configuration, where fee rates are fixed and do not depend on the MasterCard Interchange Fee value per transaction, there are two options available. The business department may choose to keep rates as they were, or can update them accordingly. However, the technical process of calculating merchant fees will be unchanged.

For acquirers using an Interchange++ Pricing model, which charges merchants based on MasterCard Interchange Fee Rates, the change has substantial impacts. The business department should notify merchants and other counterparts about the new rates.

2. Analyze your platform from a technical perspective.
The technical implementation of this article for acquirers using the Interchange++ Pricing model may be challenging as it requires introducing a new method for fee calculation. Usually, fee rate configurations support standard parameters: fixed and percentage parts, and minimum and maximum values. According to the recent article, the Interchange fee value for Refund transactions should be calculated as 75-85% (depending on the region) of the Retail Interchange Fee for this transaction. As a result, standard fee rates are no longer compatible and technical changes to the acquirer’s processing system are required.

3. Plan a test with the payment network.
For this MasterCard article, online testing is not relevant. Interchange fees are calculated offline and payment networks do not regulate internal acquiring calculations.

4. Automated regression testing.
As discussed above, automated regression testing helps cover all possible scenarios after article implementation. Interchange Fee calculations have several different scenarios depending on processing codes, card types, transaction conditions, and merchant and card countries. According to this article, only commercial refund transactions should be verified. However, new refund commissions are calculated based on retail fee values, which rely on Interchange fee rates. During regression testing, consumer refunds and all other transaction types available to the acquirer should be validated.

Let’s assume an acquirer operates in three European countries. This means that regression testing should cover at least 1,500 test cases. How do we get to that number? There are 3 domestic countries, plus the Intra European and Interregional businesses. Assuming an average of 20 card products, 5 transaction methods (chip, contactless, standard, e-commerce, and custom transactions), and 3 methods of disbursement (retail, refund, and cash disbursement), we come to a total of 1,500 test cases. Due to the huge number of test scenarios, automation is required to ensure qualitative implementation and a smooth rollout.

Test Automation Screenshot

As illustrated by this example, the preparation process for new releases requires a significant amount of effort. This example, which is based on the DataArt experience, can help your company prepare for new releases and ensure your processing platform is compliant with new regulations.

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