How Visa's New Chargeback Rules Will Help Merchants Fight E-Commerce Fraud
April 15 was a big day for American taxpayers and a big day for merchants and card issuers, too. That's the date when Visa rolled out its new worldwide dispute management process, Visa Claims Resolution (VCR). It's a major overhaul of the way Visa accepts, processes and tracks chargebacks, and it's been live in New Zealand and Hong Kong since last October. Although VCR will require merchants to learn some new rules and routines, the changes are good news for merchants that know what to expect.
VCR's Benefits for Merchants
Let's take a look at the upside of the new rules for merchants, especially card-not-present (CNP) merchants, which are particularly vulnerable to the rising tide of e-commerce fraud. Then we'll look at what merchants must do to get the most benefit from the new system.
Better Pre-Screening of Dispute Requests
The first benefit merchants may notice is an overall reduction in chargeback (dispute) requests. That's because “enhanced dispute rules” created by Visa will make better use of existing data to kick invalid dispute requests — an estimated 15 percent of the total — out of the system before they reach the merchant. Merchants will also be able to confirm credits they've issued in the system so those dispute requests don't escalate further.
Fewer Disputed Transaction Reason Codes
Visa has also streamlined and reduced the number of disputed transaction categories. Now, instead of contending with 22 chargeback request reasons, there will only be four categories for disputes: fraud, authorization, processing errors, and consumer disputes. Within each bucket there are subcategories, but the overall organization is simpler and easier to deal with.
The Fraud Category is Broader, But More Accurate
In particular, the broad “transaction not recognized” (TNR) reason is absent from the new system. Any disputed transaction that fits that description will now be sorted into the fraud category. While at first glance it might seem that this switch would inflate merchants’ fraud numbers, the TNR category was effectively a catchall for possible fraud anyway, so the simpler terminology should make it easier to identify potential fraud at a glance.
Better Fraud Reporting
VCR will also improve the way Visa, issuers and merchants share information about confirmed fraud in hopes of limiting merchant losses. The Visa Merchant Purchase Inquiry tool can alert merchants when an issuer confirms a fraudulent transaction so the merchant has the option to stop the order if it hasn't already shipped, suspend the account to prevent further fraud, and reach out to the cardholder. The merchant can also note their choice of fraud response in the system to keep everyone on the same page.
Merchant Responsibilities Under VCR
Of course, these benefits come with new responsibilities for all parties, including merchants. The two most important changes merchants must be ready for are a shortened window for responding to dispute requests and a corresponding need for better automation of data management and retrieval.
1. Less Time to Respond to Dispute Requests
Merchants now have 30 days to respond to dispute requests, down from 45 days under the previous rules. Visa says the goal is to settle disputes faster, with fewer back-and-forth communications needed to handle each request. However, that shorter time frame also means merchants must have supplemental transaction data, such as copies of receipts and proof of delivery, ready to share quickly. And PYMNTS has reported that Visa plans to eventually shorten the response window to 20 days.
2. A Need for Better Transaction Records Management
For merchants that have to search multiple databases to find what they need as well as those that still rely on paper files that must be hand-searched and scanned for sharing, the time to transition to more streamlined digital record keeping is now. Merchants must be able to locate their supporting data fast or risk losing disputes they might have otherwise won.
Despite the need to assess and possibly improve transaction records, and the need to respond faster to dispute requests, the change to VCR is a good thing for merchants. With fewer invalid disputes landing on merchants’ to-do lists, they'll be able to better focus on valid disputes, respond more quickly to reported fraud, and devote more time and attention to the core of their business.
Rafael Lourenco is executive vice president at ClearSale, a card-not-present fraud prevention operation that protects e-commerce merchants against chargebacks.
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