Get Ready For New Chargeback Rules
If one of your customers has ever disputed a transaction, you understand how frustrating the chargeback resolution process can be. The credit card industry strongly favors cardholders in the majority of cases, which can make it nearly impossible for legitimate business owners to fully protect themselves from invalid chargebacks. It’s maddening to see money pulled from your account, chargeback fees applied to your monthly statement, and funds withheld from you over an issue that could easily have been resolved through a simple refund.
That’s why Visa took major steps in April 2018 to tighten up its chargeback resolution process. These changes are meant to reduce the overall number of chargeback claims and to shorten the resolution times on valid claims. Some changes are merchant-friendly, while others will make chargebacks much more of a headache for you. However, once you understand the ins and outs of Visa’s new chargeback policies, you’ll be much better equipped to manage any future chargebacks that your business receives.
The “VCR” Initiative
Visa refers to its new chargeback rules as the Visa Claims Resolution (“VCR”) initiative. More specifically, VCR refers to the revised system that Visa has created for filing and disputing fraud claims. The following are the basic changes that VCR introduces to the chargeback resolution process.
Initial Complaint Filtering
The greatest benefit that the VCR initiative offers to merchants is its stronger screening process. When a customer claims not to recognize a transaction, their issuing bank must now identify the specific transaction that is being disputed within VisaNet. Visa will then contact the merchant before processing the chargeback to give them a chance to supply additional identifying information about the transaction to the customer’s bank, offer a credit to the customer, or both. If the customer is satisfied with the merchant’s response, then the chargeback is not processed. Visa will also use the transaction information within VisaNet to reject claims that do not meet the criteria for the selected dispute category.
Another major development is that Visa’s systems will now search for associated transactions that could have already resolved the dispute. For instance, if a customer is disputing a charge of $45 and VisaNet shows that the merchant made a separate payment of $45 to the merchant, then Visa will ask the customer’s issuing bank to verify whether their cardholder has already been credited the disputed amount. If so, the chargeback is not processed.
If the cardholder’s bank informs Visa that the transaction was fraudulent, then Visa will now alert merchants immediately that the transaction has been flagged so that the merchant can stop shipment, suspend the cardholder’s account, or contact the cardholder. This will help merchants avoid further losses from the same compromised credit card.
Consolidated Reason Codes
Visa has collapsed the 22 available “reason codes” (codes that represent the cardholder’s reason for filing the chargeback) into four distinct categories: Fraud, Authorization, Processing Errors, and Consumer Disputes. Most importantly, Visa has completely eliminated reason code 75, “Transaction Not Recognized.” This is an extremely common reason code that is no longer available to cardholders because Visa now requires issuing banks to identify the disputed transaction within VisaNet.
It is likely that non-specific chargebacks will now be filed under reason codes 10.3 (“Other Fraud – Card Present Environment”) and 10.4 (“Other Fraud – Card Absent Environment”), but these at least require a more specific claim from cardholders than “Transaction Not Recognized.” Visa will also pull relevant transaction details from VisaNet and forward them to the merchant in order to help the merchant mount a response to the chargeback.
Shorter Response Times
Visa is interested in shortening the average amount of time per chargeback resolution, which currently stands at 46 days. To do so, it has imposed hard 30-day time limits for both merchants and issuing banks to respond to claims.
For valid chargebacks filed under Fraud or Authorization reason codes, Visa will survey the initial evidence and issue an automated ruling in the matter. In some cases, merchants or issuing banks will be able to respond to Visa’s ruling, but they will have only 30 days to issue a pre-arbitration response. There will then be a 10-day arbitration period for the merchant to resolve the issue before Visa’s ruling is final.
For chargebacks filed under Processing Error or Consumer Disputes reason codes, issuing banks will be required to fill out a questionnaire that will ensure that all of the relevant information has been filed for the dispute. Merchants and issuing banks will then have a 30-day window for their pre-arbitration response followed by a 10-day arbitration period. Visa will then issue its final ruling. These response timeframes are hard limits.
One nice feature for merchants is that Visa will now require issuing banks to “address what the merchants have provided, either acknowledging the response and countering, or providing an acceptance of the liability.” If the issuing bank does not provided this acknowledgement within the established timeframes, it is “the equivalent to an acceptance of the liability and closure of the dispute.”
Visa has also instituted general improvements to its system to prevent all parties from abusing the chargeback process. In addition to its newly added screening processes, Visa will monitor the conduct of issuers, acquirers, merchants and occasionally even cardholders to issue them a score, which Visa uses to monitor use or misuse of the platform. If this score drops rapidly, Visa will step in to identify what could be causing the issue.
Visa will also place a limit of 35 card-not-present fraud disputes on any given card within a 120-day time period. If an issuing bank reports fraud on a cardholder’s account, then that issuing bank cannot initiate any fraud disputes on any new transactions made by that account going forward. Merchants will also be able to “bundle” their responses to multiple chargebacks filed by the same cardholder rather than handling each transaction individually.
You Are In Control
Although Visa’s changes have created an entirely new process for resolving fraud, most of the existing best practices still apply. You can protect yourself from chargebacks by securing your point-of-sale network, maintaining PCI compliance, and providing quality customer support that issues refunds in a timely fashion. It remains to be seen whether the VCR initiative will be a net positive or negative for merchants, but merchants who have taken the proper steps to prevent chargebacks shouldn’t be affected too much either way.
Have you used Visa’s new chargeback resolution process? Describe your experience in the comment section below: