April 15 is a tense day in the U.S. under normal circumstances, but, for e-commerce merchants around the world, this Sunday was especially daunting. The tax collector hasn’t cooked up anything new in 2018, but Visa implemented some long-awaited changes this year to its chargeback process, the effects of which, while they could turn out positive for merchants, are still unclear.
In response to a process card-not-present merchants feel is unfair, unclear and untimely, Visa this week launched its Visa Claims Resolution (VCR) process, overhauling the rules governing when and how disputes are resolved. Visa hopes the changes will provide more clarity for merchants and reduce the time required for the process to play out. Instead of relying on issuers, processors and merchants to follow the complex guidelines that previously existed, the San Francisco-based card network created a global, data-driven management system called Visa Resolve Online (VROL) that will automate the cumbersome process and eliminate as many disputes as possible up front (invalid disputes alone accounted for as much as 15 percent of all Visa chargeback volume). Here’s what merchants can expect:
Shorter Response Window – Currently, a merchant processor and merchant have around 45 days to respond to a chargeback. Under the new process, this will be shortened to 30 days and ultimately, Visa hopes, 20 days. Whatever timeframe ends up in place, it is safe to assume this will be shorter than it is now. Merchants that don’t have an automated or semi-automated way to respond to chargebacks should consider one.
Fewer Chargeback Reason Codes – The VCR will reduce the number of chargeback reason codes from 22 to four: Fraud, Authorization, Processing Errors and Consumer Disputes. Each of these categories has sub-categories that better describe specific situations. For example, a merchant might receive a “Consumer Dispute” chargeback in place of current reason codes such as “Merchandise/Services Not Received,” “Canceled Recurring Transaction,” “Not as Described” or up to six others. Merchants absolutely should continue to track the sub-reason codes to understand why customers are filing chargebacks against them.
Streamlined Processing – Here is where the automated VROL takes center stage. There are two separate processes for handling disputes, depending on the categories selected: Allocation and Collaboration. Liability for most chargebacks in the “Fraud” or “Authorization” categories will be determined automatically by the VROL before a merchant is notified there is a dispute (i.e., Allocation). At this point, the system will only reverse a chargeback in the merchant’s favor if:
- The original purchase was a 3D Secure transaction
- The dispute was filed outside the allotted time frame
- The transaction was already refunded
This automated decision process will enforce hard rules, hopefully eliminating much of the back and forth that happens at this stage. But merchants have the opportunity to respond to chargebacks in Allocation that do not meet the above criteria under several conditions:
- Cardholder no longer wishes to dispute
- Compelling evidence (some indication the cardholder participated in the transaction such as proof of usage, social media linkage to e-mail address, etc.)
- Credit was processed, but wasn’t caught by the automated system
- Proof that this was an invalid dispute
The Collaboration workflow will be initiated mostly for chargebacks in the “Processing Errors” or “Consumer Disputes” category. In these cases, issuers are 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.
Benefits to Merchants – Under the VCR, Visa has also applied new rules to the dispute process to target both card-present and card-not-present fraud.
- Maximum fraud per (credit card) account – In an effort to control “friendly fraud,” Visa will place a limit of 35 card-not-present fraud disputes per credit card account number within a 120 day time period.
- Block future fraud if account not closed –Under the VCR, a fraud chargeback does not automatically result in cancellation and reissue of a card. But, if subsequent fraud chargebacks are filed on the same card, 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 should reduce dispute volume, provide proactive dispute resolution, identify, track and monitor abuse and enhance the customer experience for all stakeholders. But, merchants that aren’t yet aware of or prepared for VCR should be making some changes of their own: 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 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 resources that delve deeper into the VCR.