With chargeback costs estimated in the billions, Visa is attempting to streamline the process and reduce the number of chargebacks with the new Visa Claims Resolution (VCR) initiative. Some of the changes VCR implements will benefit merchants, while others may cause problems. The new process takes effect on April 15, and businesses should be prepared for the changes.
Who Is Affected?
There are multiple parties involved in the chargeback process:
• Consumer: the person who makes the initial purchase
• Merchant: the business that sells what the consumer buys
• Issuer: the bank or credit company that handles the consumer transaction*
• Acquirer: the bank or credit company that processes the merchant transaction*
_*Note that the issuer and acquirer may be the same in some transactions. _
Each party will be affected by the changes in different ways. There are a few changes that merchants in particular should know.
New Format for Reason Codes
Previously, there were 22 different reason codes used to label chargebacks, which affected how they were dealt with. Moving forward, Visa is reducing this to 4 main categories. These categories will be:
• Processing Error
• Consumer Dispute
The biggest change to note is that "Transaction Not Recognized" is no longer an option. Because of this, people who see a charge they are unsure of will have to choose one of the above four categories and are likely to choose “Fraud”, leading to more chargebacks labelled as fraudulent.
Dispute Windows Are Shrinking
Currently, businesses have up to 45 days to counter any initiated chargeback. In 2019, that number will be further reduced to only 20 days.
These shorter timelines are meant to streamline the process and encourage automation for merchants. With less time to make a dispute, it's important to have all the information needed for each purchase organized and easily accessible.
Furthermore, there is also a new “Dispute Questionnaire” that issuers will be required to complete. The questionnaire is meant to prevent disputes from advancing if they fail to meet the necessary criteria.
With these changes in effect, it will be even more crucial for merchants to have segmentation tools to identify fraudulent users quickly, as merchants will have less time to dispute any chargebacks that do occur should they fail to prevent a suspect order.
The new rules include a limit on the number of transactions that can be disputed on an individual account number. For example, if 35 disputes are made within 120 days on one account, the issuer is no longer allowed to initiate disputes for that customer. This puts the burden on issuers to close or limit accounts that are known to have fraudulent activity linked to them.
Currently, merchants are vulnerable to repeat offenders using the same stolen account multiple times. Moving forward, the process is meant to flag these transactions early and prevent further use of fraudulent accounts.
However, as this process does not safeguard against individual fraudulent transactions (only prevent repeated misuse of accounts), merchants will not want to let their guard down and will still want systems in place to prevent initial fraudulent users.
With VCR, Fraud and Authorization disputes will be approved or rejected based on the evidence available to the issuer and acquirer, with merchants required to provide any necessary data up-front. Using this data, as well as authorization information and fraud reports, Visa will ensure the disputes are legitimate before deciding on the validity of the claim.
On the other hand, processing errors and consumer disputes will be handled through a more collaborative workflow. Merchants will be notified that a dispute has been filed and will have the ability to submit evidence against the dispute. It will be extremely important for companies to track all data related to customer purchases for this step, as the decision on who is liable will then be determined.
Data Is Key
Chargebacks can be expensive and time-consuming to handle. In fact, “some estimates say that for every $1 lost to fraud, your typical business spends $2.67 dealing with the problem”.1
Having the right evidence is essential to countering invalid claims and keeping these costs from piling up. Preventing order fraud and stopping chargebacks before they occur is just as important.
NS8 Complete Storefront Protection can help you prevent order fraud, making this process easier. With customizable rules on how to handle orders, you can pause orders that are likely fraud and need manual review before fulfilling. You can also set up rules to cancel and refund orders that do not meet a minimum threshold or put in an SMS verification step on orders.