The Payment Services Regulation (PSR) and Payment Services Directive 3 (PSD3) introduced a proposal last year to extend unconditional refund rights to merchant-initiated transactions (MITs). Currently, these refund rights apply only to direct debits under PSD2.

This provision remains at the proposal stage and has not yet been implemented, as it is still subject to further legislative review. If adopted, it could have significant implications for the industry, particularly in how refunds are managed for recurring payments and subscriptions.

In e-commerce, transactions can either be customer-initiated or merchant-initiated, both of which fall under PSD2 guidelines and typically require compliance with the strong customer authentication (SCA) framework, unless they qualify for an SCA exemption.

Cardholder-Initiated Transactions (CIT)

CITs occur when the cardholder is actively involved in the transaction. These are typically purchases where the customer manually enters their card details at checkout or explicitly authorises the payment, such as:

• A one-time online purchase.
• Using a card at a point-of-sale terminal.

The customer is present (physically or virtually), and their involvement triggers the transaction.

Merchant-Initiated Transactions (MIT)

MITs, on the other hand, happen without the cardholder’s immediate input. These are transactions initiated by the merchant using stored payment credentials, based on prior authorization from the cardholder. Common examples include:

• Recurring payments (e.g., monthly subscriptions).
• Installments for a large purchase.
• Delayed charges (e.g., hotel incidentals or toll fees).

MITs rely on the merchant’s agreement with the customer, ensuring that transactions occur as planned, even without the cardholder’s real-time action.

Key Differences

• Customer involvement: CITs require real-time cardholder input; MITs do not.
• Authentication: CITs are typically verified with Strong Customer Authentication (SCA) under regulations like PSD2, while MITs reference prior authorization from an initial CIT.
• Use case: CITs cover ad hoc purchases, while MITs handle pre-agreed, automated payments.

#didyouknow💡

◼️ MIT transactions do not need SCA because of the fact that the buyer is not present during the transaction.
◼️However, MIT transactions need to follow a first transaction that underwent SCA authentication, in order to guarantee security for the buyer. This represents the agreement with the buyer

There are two types of MIT Transactions:

𝙍𝙚𝙘𝙪𝙧𝙧𝙞𝙣𝙜

◼️These are for the types of payments that have a set agreement on a payment schedule defined with a maximum amount over a certain timeframe and a certain frequency.

◼️The authentication on the first recurring payment is required as this is the proof of consensus between the merchant and the buyer on submitting subsequent payments

Examples include Installments, Subscription products, Subscription to digital services

𝙐𝙣𝙨𝙘𝙝𝙚𝙙𝙪𝙡𝙚𝙙

◼️These are transactions that rely on stored credentials for a fixed or variable amount that does not occur on a scheduled or regularly occurring transaction date.

◼️Consent from the cardholder must be provided beforehand for the merchant to initiate one or more future transactions.

◼️ The use case for such transactions are for example when payments occur without a specific frequency and with amounts that are always changing.

eg #Incrementals #Noshow #Utilities #Rentals

On the other end, a CIT can be any of the following kinds of transactions:

◼️𝐂𝐚𝐫𝐝 𝐩𝐫𝐞𝐬𝐞𝐧𝐭, whereby the cardholder makes a purchase in store and provides payment informationF2F.

◼️𝐂𝐚𝐫𝐝-𝐨𝐧-𝐟𝐢𝐥𝐞 (𝐂𝐎𝐅), whereby the cardholder orders an item online and instructs save the card details for future use.

◼️𝐄-𝐜𝐨𝐦𝐦𝐞𝐫𝐜𝐞, whereby the cardholder orders an item online and provides payment information during checkout.

◼️𝐌𝐚𝐢𝐥 𝐨𝐫𝐝𝐞𝐫 𝐨𝐫 𝐭𝐞𝐥𝐞𝐩𝐡𝐨𝐧𝐞 𝐨𝐫𝐝𝐞𝐫 (𝐌𝐎𝐓𝐎), whereby the cardholder orders an item over the telephone and provides the payment information over the phone too.