Visa's Chargeback Monitoring Program
If you’re a merchant operating in the card-not-present space, you understand the critical importance of maintaining a low chargeback rate. However, what do you do when an unexpected surge in chargebacks lands you in Visa’s Chargeback Monitoring Program (VDMP)? In this comprehensive guide, we’ll explore the Visa Dispute Monitoring Program (VDMP), its intricacies, and provide valuable tips to manage chargebacks effectively to avoid enrollment in the first place.
Understanding Visa Dispute Monitoring Program (VDMP)
The Visa Dispute Monitoring Program (VDMP) serves as Visa’s global chargeback monitoring initiative. It continuously monitors merchant chargeback activity, enforcing management strategies when chargeback thresholds are breached. Additionally, VDMP serves as a penalty for merchants failing to meet Visa’s standards. Your acquiring bank monitors your activity to ensure it doesn’t pose risks to its organization or card networks, automatically enrolling you in VDMP if you exceed Visa’s dispute thresholds.
Risk Thresholds: Visa categorizes merchants into different risk categories based on dispute count and ratio. Fines are issued accordingly, and the duration spent in the program matters:
- Early Warning (Both 75 disputes AND 0.65% ratio): Not a violation, but an alert.
- Standard (Both 100 disputes AND 0.9% ratio)
- High-Risk Merchant (Both 100 disputes AND 0.9% ratio)
- Excessive (Both 1,000 disputes AND 1.8% ratio)
Calculating Your Dispute Ratio
Your dispute ratio, also called a chargeback ratio, reveals the ratio between the total transactions processed and the chargebacks received. Visa calculates it as follows:
Dispute Ratio = (Total Chargebacks / Total Transactions) x 100
Visa Violation Statuses
Visa’s violation statuses determine when fines and penalties are applied
- Notification: The initial month in the standard threshold. No fines from Visa, but your processor may charge.
- Workout: Subsequent months, allowing time for you to resolve chargeback issues. Visa doesn’t fine you during this stage, but your processor may.
- Enforcement: If issues persist during the workout stage, your account moves here. Visa imposes fines and penalties when your account meets standard or higher thresholds.
Note: Notification and workout statuses only apply to standard merchants. High-risk or a 1.8+ dispute ratio results in immediate fines without a grace period.
Fines in the Visa Chargeback Monitoring Program
Fines are charged per dispute, varying based on your classification type (standard, high-risk, or excessive). They start immediately for high-risk or excessive merchants. The longer you stay in the program, the more you’ll pay in fines, typically $50 per dispute and a $25,000 review fee during specific months. If you remain in the program for 12 months, Visa can close your merchant account.
Impact of Chargeback Monitoring Programs
Enrollment in a chargeback monitoring program can significantly impact your revenue due to chargeback accumulation, fines, and additional fees. Fraud and high chargebacks can jeopardize your ability to accept Visa payments. The stress of managing chargebacks can lead to resource expansion. Ideally, you want to avoid these programs, but if enrolled, take steps to exit swiftly.
Note: Visa also monitors fraud count and fraud ratio in programs parallel to VDMP. Issues with chargebacks often correlate with fraud problems.
Steps to Take When Enrolled in VDMP
Here's how to handle VDMP enrollment:
Develop a Remediation Plan
VDMP encourages merchants to establish an effective chargeback management strategy. You may need to submit a remediation plan detailing:
- Business description.
- Policy outlines (return, refund, terms, etc.).
- Chargeback description (root causes).
- Risk management strategy (tools and actions).
- Action plan (solutions and expected results).
Tips for Managing Chargebacks
Exiting VDMP depends on controlling chargeback issues. Utilize tools like:
- Chargeback Prevention Tools: Includes order validation, prevention alerts, and rapid dispute resolution.
- Data Analysis: Identify patterns and anomalies to understand chargeback causes.
- Fraud Protection Software: Utilize machine learning to combat fraud-related chargebacks.
- Customer Service Protocols: Improve customer service to reduce misunderstandings.
- Verification Tools: Implement card verification value (CVV), address verification service (AVS), and 3D Secure 2.0.
- Web Security Protocols: Enhance website security with firewalls and CAPTCHAs.
Exiting the Visa Dispute Monitoring Program
To leave VDMP, your account must fall below standard category thresholds for three consecutive months. Compliance with dispute count and ratio is crucial for a smooth exit.
Understanding Visa Chargeback Monitoring
As part of your responsibilities to card networks, maintaining acceptable dispute and fraud levels is vital. If you exceed network thresholds (e.g., Visa or Mastercard), you enter their monitoring programs, incurring monthly fines until you rectify the situation. Visa’s Chargeback Monitoring Program aims to support merchants in adhering to its guidelines and regulations.
Visa Chargeback Definition
Visa defines chargebacks as a way for issuers to return disputed transactions, highlighting key reasons such as lack of authorization, missing card imprints, and accepting expired credit cards.
Visa Chargeback Monitoring Programs
Visa employs three chargeback monitoring programs:
- Visa Merchant Fraud Program: Monitors chargeback activity for U.S. merchants and acquirers, imposing penalties if thresholds are exceeded.
- High Brand Risk Chargeback Monitoring Program: Targets high-risk merchants without notification or workout periods, instantly making acquirers liable for fees.
- Global Merchant Chargeback Monitoring Program: Encourages global merchants to reduce chargebacks through best practices, imposing fines if excessive chargeback activity persists.
It’s crucial to stay informed by reading Visa’s documentation and communicating with your acquirer to ensure compliance.
Conclusion
Hopefully this guide equips you with the knowledge needed to navigate Visa’s chargeback monitoring programs and take proactive steps to avoid enrollment or expedite your exit. By understanding the intricacies of these programs and implementing effective chargeback management strategies, you can safeguard your business and maintain a healthy bottom line. As always, we are here to answer any questions. (970) 259-8660.
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