Visa is lowering their threshold for chargebacks and fraud on merchants and acquirers in the fall of 2019. This means that even if your chargeback ratio is well below the threshold, costs may be passed on to you if your acquirer has too many risky merchants. It’s more important than ever to know exactly what your ratio is and how your acquirer handles chargeback management.
So what are the changes? Visa is lowering the thresholds on both their Chargeback Ratio and their Fraud Ratio.
A chargeback ratio refers to the relationship between the total number of orders and the number of chargebacks a store receives in a month. Too many chargebacks results in a high ratio. Companies want to keep this number low to avoid paying additional fees. Companies that have an unusually high ratio will pass the excessive threshold and are subject to even further scrutiny. They may even be dropped by Visa if problems are not corrected.
A fraud ratio refers to the relationship between the total amount of revenue and the amount of revenue that was fraud in a given month. There are 2 components to this ratio: how many fraudulent transactions are processed and the amount of money processed as fraud versus regular sales. Like the chargeback ratio, your fraud ratio should be kept low to avoid paying fees. Similarly, companies that pass the excessive threshold are subject to even further scrutiny and could be dropped by Visa if problems are not corrected.
VCMP and VFMP
What happens if you come in above the threshold? To start, you will likely have to deal with additional fees from both your acquirer and Visa. Beyond that, Visa requires that merchants above these thresholds enter into the Visa Chargeback Management Program (VCMP) or the Visa Fraud Management Program (VFMP). You may even be required to do both.
These programs are similar to being put on probation. They require merchants to create detailed and extensive risk management plans. Sales may be monitored or additional verification tools may be added to your checkout process. You may even have to pay for pricey reviews or additional protections chosen by your acquirer or Visa.
In addition, Visa has suggested acquirers keep a closer eye on merchants offering free trials or using recurring billing processes. This may mean your acquirer requires more oversight or information about your payment processes than they needed previously, even if you are below the new thresholds.
Chargeback Management vs Fraud Management
While they may seem interchangeable, chargeback management and fraud management are not usually the same thing. Chargebacks are the result of fraud (both friendly and traditional). Chargeback management often focuses specifically on reducing the number of chargebacks, which could be considered a symptom. Fraud management, however, is focused on stopping the root of the problem. If done correctly, it should naturally reduce chargebacks as well. However, both will likely need to be considered if you end up above either of these thresholds.
Fraud and Chargeback Reduction Tips
- Review your own processes. Many chargebacks are the result of mistakes and errors in the purchasing operation. By ensuring these errors do not occur, you can significantly reduce the number of chargebacks you see.
- Find the right fraud protection that covers both chargebacks and overall fraud.
- Talk to your acquirer about their strategies and how fees will work. Consider talking to other merchants and doing research to make sure your fees are standard.
- Research the requirements and make sure you are in compliance with all rules if you offer a free trial or use recurring billing. If the recurring billing charges change each month, take extra care to make sure all permissions have been received.
- Have a plan in place for what to do if chargebacks or fraud begin to tick up. The faster you handle small problems, the less likely they are to become big problems.