Visa Changes to Chargeback Rules
Love them or hate them chargebacks are part of doing business and accepting credit card payments. Chargebacks occur when a card holder disputes a charge made with their credit card, resulting in a reversal of the original sale and leaving the merchant holding the bag for costly chargeback fees. Learn more about chargebacks here. For consumers, chargebacks are a great tool to protect against fraud, processing errors, disputes and much more. While initiating a chargeback on the consumers end is as easy as a phone call, for merchants it is a completely different story.
Once a chargeback is initiated, a resolution process is set into motion where the merchant has the burden of proof showing that the sale was legitimate. This resolution process could take up to 150 days and usually involves various e-mails, production of documents, phone calls, and much more. Moreover, the merchant has to carry out this cumbersome process for each individual chargeback, costing both time and money.
At the end of the day, even if the merchant is successful in challenging a chargeback, the time spent in fighting it may cost more than the original sale was worth. Leaving merchants caught between a rock and a hard place.
If that wasn’t enough, there are some malicious consumers who buy items with the intent of disputing the charge later, often referred to as friendly fraud. Learn more about friendly fraud here.
In order to combat friendly fraud and streamline the chargeback process, Visa has introduced new chargeback rules. While Visa’s changes may reduce friendly fraud, the changes could also make things more difficult and tedious for merchants.
Visa’s Chargeback System: Visa Claims Resolution
The chargeback system is not at all standardized, which means that every processor, issuer, and brand deals with chargebacks differently. Making an already complicated process more confusing to navigate for merchants.
Visa introduced their chargeback system Visa Claims Resolution (VCR) in an attempt to simplify chargebacks. Learn more about Visa Claims Resolution here.
By implementing certain screening processes and automation, Visa hopes to eliminate weak chargeback cases before a merchant has to take on the costly task of defending against them. While implementing certain chargeback claim thresholds is a positive change for merchants, there are other rule changes that are far less beneficial.
One of the headache inducing changes that Visa is implementing is shorter response times. Under the old rules, merchants had 45 days to respond to chargeback claims, now merchants will have only 30 days to make their case, but given the various entities involved in the chargeback system, merchants actually have less than 30 days to respond to claims. Additionally, Visa aims to reduce the total length of dispute time to less than 100 days, down from 150 days. While reduced times may seem beneficial on the surface, for many merchants that are dealing with multiple chargebacks less time to make their case is actually a hinderance.
If the lack of time for merchants to make their case wasn’t enough of a blow, merchants must also present all evidence and supporting documentation up front and can no longer make amendments or send additional documentation after their initial defense. More than ever, keeping accurate records and implanting good fraud prevention is key.
Another change that is causing some concern for merchants are the new consolidated chargeback categories. Previously, a chargeback could be initiated for 22 reasons, but under the new VCR rules chargeback reasons have been paired down to four main categories: Fraud, Authorization, Processing Errors, and Consumer Disputes. While the condensing of chargeback reasons can help to shorten the process, there may also be an increase of claims falling into the fraud category. With more chargebacks marked as fraud, merchants may see their rates increase with processors and banks as they might be labeled as high risk.
As of April 2018, these VCR rules apply to all Visa chargebacks globally. The best way to avoid going through the chargeback system is to put into place good business practices that will curtail the amount of chargebacks initiated against your business.
To avoid chargebacks:
Provide your customers with a straightforward refund policy that is clear, easy to initiate, and uncomplicated. It is always preferable to issue a refund than be on the receiving end of a chargeback.
Subscription based business that rely on recurring billing are prone to increased chargebacks since customers simply forget what they signed up for and don’t recognize the charges. For this reason, we suggest choosing a monthly recurring billing cycle over annual billing. Whether charging in monthly or annual cycles, the best way to avoid chargebacks is to keep in contact with your customers and send billing reminders before the billing date.
During the ordering process, make sure customers provide CVV codes as well as their billing and shipping address.
Keep detailed records, receipts, and documentation to help in your challenge of chargebacks.