For years, card-not-present merchants have felt like the chargeback process is unfair, unclear and untimely. Visa has heard these complaints and criticisms loud and clear – and beginning April 15, 2018, they’ve made significant changes.
The new program is called Visa Claims Resolution (VCR for short….not to be confused with the way we children of the 80’s once watched movies). The goals of the new program are to:
- Reduce the time a transaction is in financial limbo in the chargeback process
- Ensure both sides of the dispute are following the chargeback rules governing this process
- Provide clarity to when a chargeback can and will be reversed.
The biggest change: a new data-driven management system
Visa has created a new, more data-driven management system that will automatically identify & block disputes that don’t meet the necessary criteria for the selected dispute category. The goal is to reduce invalid disputes, which we’ll cover in more detail later in this post.
A natural question you might be asking yourself is: “what is the necessary criteria?” Not surprisingly, the answer will differ based on the type of dispute you encounter. Visa has committed to “leveraging existing data wherever possible,” but they reserve the right to request additional data should it improve the decision making process.
Based on the data an issuer and Visa have about a transaction, they can determine in an automated way if that information meets the minimum required thresholds for a chargeback. If not, it will not be passed on to the merchant. If the initial information is within the timeframe for a chargeback and other criteria is met, the chargeback will be filed and sent to the merchant to provide additional information about the transaction only the merchant has access to, such as transaction details, the shipping address, IP or device information, etc. This second step will look similar to the merchant as the existing process.
Previously, both “sides” of a chargeback dispute were like two intramural basketball teams, playing by a common set of rules and guidelines published by the card brands, but without a referee present at the game.
It was up to the issuer (representing the cardholder) and the merchant processor (representing the merchant) to abide by the rules. And unless a dispute made it to arbitration, which wasn’t often, the process was largely self-governed.
If a chargeback was filed by the issuer after the allowed time frame, the merchant processor had to catch it and dispute it. If a merchant didn’t provide the exact information required for a specific reason code, the processor could reverse the chargeback in the merchant’s favor in a first-time chargeback, though the issuer would often reject the representment with a second-time chargeback, resulting in a debit to the merchant and unnecessary steps for both sides.
Although Visa can’t put an actual person in charge of each dispute, the new management system will act as a “referee” of sorts.
Less time to dispute chargebacks
Currently, a merchant processor and merchant have around 45 days to respond to a chargeback – including notifying the merchant, the merchant providing a response, and the processor providing this documentation to the issuing bank.
Under the new process, the timeframe will be shortened to 30 days (with the ultimate goal of 20 days, at a future date to be determined). While the exact time a processor gives a merchant to respond to the chargeback varies, it is safe to assume this will be shorter than it is currently.
If you don’t have an automated or semi-automated way to respond to chargebacks now, this is something you should consider. Furthermore, this full or semi-automation should be adaptable to additional shortened time frames in the future.
Fewer chargeback reason codes
Under the legacy Visa Chargeback system, there are 22 chargeback reason codes (And remember, this is just for Visa. All card brands have their own number of codes). Under the new VCR process, there will be 4 dispute categories: Fraud, Authorization, Processing Errors and Consumer Disputes.
Each of these categories have subcategories that better describe the specific situation. For example, you could receive a “Consumer Dispute” chargeback in place of current reason codes such as “Merchandise/Services Not Received”, “Canceled Recurring Transaction”, “Not as Described”, or for 6 other instances.
It will be important to continue to track these sub-reason codes for business intelligence, to better understand why cardholders are filing chargebacks towards your company.
There will be two separate processes for handling disputes, depending on the categories selected. If you are receiving a chargeback in the “Fraud” or “Authorization” categories, there will be an automated decisioning process, prior to the merchant being notified of the dispute.
This automated decision process will free up a lot of the back and forth that currently takes place in the system. These are the hard rules being enforced now that the referee is present in the “game.”
For chargebacks in the “Processing errors” or “Consumer Disputes” category, issuers will be required to fill out an enhanced “Dispute Questionnaire” that will ensure that all required information is captured before the dispute can be initiated. This will allow for a quicker, more efficient process and that the issuer is complying with the criteria for filing a chargeback on the cardholder’s behalf.
Reduce invalid disputes
In their analysis of the current chargeback process, Visa identified ~5 million invalid disputes in their system, which accounted for ~15% of all chargeback volume. While most of these were reversed by processors and/or merchants throughout the dispute process, these chargebacks muck up the system and leave room for error, usually at the merchant’s expense.
With the changes, issuers and merchants will communicate about chargebacks on the Visa system, requiring issuers to select the exact transactions being disputed. This automated system will allow chargebacks to proceed to the merchant if they meet specific criteria, eliminating chargebacks for transactions that are too old, have been refunded, or participated in 3D Secure.
Additional Fraud Rules/Processes- Benefits to Merchants:
Visa will also apply new rules to the dispute process to target both card-present and card-not-present fraud. The following rules will be enforced once the VCR goes live:
- Maximum fraud per (credit card) account- Visa will place a limit of 35 card-not-present fraud disputes per credit card account number within a 120 day time period; this is across all CNP merchants, limiting cardholders that habitually file fraud chargebacks when they took part in the transaction (also known as “friendly fraud.”)
- Block future fraud if account not closed- While an issuer is currently asked to cancel a credit card once a fraud chargeback is received, there currently is no accountability if a card is not canceled and future fraud chargebacks are filed. With VCR, Visa allows the issuer to determine if they will re-issue a new credit card number. However, if further fraud chargebacks are initiated by the cardholder on a card that was left open after a fraud chargeback is filed, the system will prevent the issuer from filing future chargebacks on that account.
- Bundling- If certain conditions apply, merchants may “bundle” their response where multiple transactions occurred on a single account and Merchant ID (MID), A single response questionnaire is used to reply to multiple disputes at once.
Overall, these massive changes to the Visa chargeback process promise to reduce dispute volume, provide proactive dispute resolution, identify, track and monitor abuse and to increase the customer experience for all stakeholders.
But, if you aren’t yet prepared for the implementation of VCR, it’s important to be aware of the updates and changes and have a plan to respond to chargebacks faster, have a process to evaluate whether you have the required response documentation for each reason code (especially fraud chargebacks) and to be prepared to respond to chargebacks in the shortened time frame.
For further information direct from Visa about these changes, visit the Visa Business School for several resources: https://www.visabusinessschool.com/en/vcr.