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What are Visa's New Chargeback Rules for 2018?
In April of this year, Visa launched a series of changes to the way they handle chargebacks by their cardholders. Traditionally the rules governing chargebacks have significantly favored credit card holders over merchants, leaving business owners with few defenses against inappropriate chargebacks. However, recent changes made by Visa may help to reduce the unfair and unnecessary chargebacks that burden merchant account holders with lost revenue and extra fees. These changes, in connection with other elements of the Visa Claims Resolution (VCR) dispute process, have been enacted with the goal of making the dispute process more streamlined, efficient, and cost-effective.
Visa’s Chargeback Reason Codes Change
One of the primary changes made to Visa’s chargeback rules this past spring was the consolidation of the “reason codes” assigned to a chargeback. Previously, there were 22 different codes used to label and explain chargebacks, determined by the cause given by the cardholder for disputing the charge. The available reason codes have now been collapsed into four general categories: Fraud, Authorization, Consumer Disputes, and Processing Errors. Of particular note is that the reason code that had previously been used most frequently, “Transaction Not Recognized,” has been eliminated entirely. Now, if a cardholder finds a charge on their statement that they don’t recognize, they will be guided to use the information present in the Visa portal to attempt to identify the transaction. Though many chargebacks that might have used the Transaction Not Recognized code in the past will likely be filed under one of the Fraud codes going forward, this change encourages cardholders to examine the transactions more closely and may prevent chargebacks on forgotten or confusingly-labeled legitimate purchases.
Improved Communication a Key Feature of Visa’s Updated Chargeback Rules
In a similar vein, changes made to the preliminary stages of chargeback claim processing are designed to reduce miscommunication between the merchant and the cardholder in an effort to eliminate the need for a chargeback. When a chargeback claim is first received, Visa automatically contacts the merchant to inform them, giving the merchant an opportunity to provide additional identifying information about the transaction or reach out to the consumer with the offer of a refund, credit, or other solution. If these measures are successful, the chargeback is not processed, and the merchant is not penalized. Likewise, Visa’s automated systems respond to a chargeback claim by reviewing the transaction history between the cardholder and the merchant for other transactions that may be related to the contested transaction – such as a credit to the cardholder’s account that might represent a refund being issued by the merchant. If further investigation indicates that the related transaction did, in fact, satisfactorily resolve the dispute, the chargeback is not processed.
Should a transaction prove fraudulent, Visa’s updated policies of communication regarding chargebacks mean that the merchant account holder is informed of the flagged transaction. This enables the merchant to take steps to protect themselves from additional fraud associated with the same card by suspending activity on the compromised account, stopping shipment of any orders currently being processed for that account, and contacting the cardholder about the issue. Though this does not negate the original chargeback, it helps merchant account holders ensure that they do not suffer multiple chargebacks from the same compromised consumer credit card. This is not the only change made by Visa to shield merchants from repeated chargebacks from a single credit card. Under the recent chargeback rule changes, an issuing bank may not initiate more than 35 fraud disputes on card-not-present transactions on any individual card within a 120 day period. This both provides incentive for issuing banks to respond promptly and appropriately to cases of possible fraud, and protects merchants from repeated chargebacks stemming from a single compromised card. In the event thatmultiple fraudulent transactions between a given card and a given merchant are made before the problem is discovered and flagged, the merchant may file their responses to the resulting chargebacks as a “bundle,” rather than going through the same process for each individual transaction.
Visa Dispute Deadlines For Chargebacks Shrinks to 20 Days
One of the most important changes to Visa’s chargeback rules affects the amount of time allowed for responses to a chargeback claim. Prior to April 2018, the window of time granted for responding to chargeback dispute was 45 days. After the recent changes, that span of time was reduced to 30 days. Next year, merchants should expect that window to shrink further, down to 20 days. As these deadlines apply to both the acquirer and the merchant, business owners should implement policies that allow them to respond to chargebacks as quickly as possible, since the amount of time they have to dispute chargeback claims is very limited, and once the response window is closed, merchants will have no further recourse for addressing the chargeback. The motive behind this change is to shorten the dispute resolution process for all parties, which does have the benefit to merchants of a shorter period of uncertainty regarding the challenged funds and the potential chargeback fees, but it also places a greater demand on the merchant to respond in a timely fashion. On the positive side, the merchant does not bear the sole burden of needing to make a prompt response in a chargeback dispute. If the issuing bank fails to acknowledge the merchant’s response within the allotted window of time, either by countering the merchant’s points with their own response or by agreeing with the merchant’s statements and accepting liability, the issuing bank effectively forfeits the dispute and accepts liability for the chargeback by default.
Taking Action to Minimize Chargeback Risks and Create a Better User Experience
- Merchants looking for ways to protect themselves from unnecessary chargebacks under the current Visa rules (and the anticipated 2019 changes) should keep in mind a few simple but critical steps:
- Create a set of protocols that enable you to respond quickly when notified of a chargeback by researching the transaction, contacting the consumer, and if necessary, disputing the chargeback.
- Make sure that your billing descriptor is unambiguous and recognizable. Your billing descriptor is the line of text that appears on your customers’ credit card statements explaining the origin of your transaction. It should reflect your business name in a way that instantly connects in the customer’s mind the transaction on their statement with the product or service the customer ordered. If the customer fails to make that connection, they will dispute the charge without contacting you, because they won’t know what it was for or where it came from.
- Keep the lines of communication between you and your customers open. Make it easy for customers to contact you for support through multiple channels. If your customers can easily reach you with their issues and concerns, you are more likely to be able to solve their problems before they escalate the matter to a chargeback. Similarly, you should offer a reasonable and easily-located policy for returns, refunds, exchanges, and credits. If an unsatisfied customer can obtain a refund directly through your business, you can avoid the additional penalties to your merchant account associated with a chargeback.
- Utilize fraud protection and authentication methods provided or endorsed by major card issuers. Filtering out fraudulent transactions during the payment process means fewer fraud-related chargebacks. Visa 3D Secure and MasterCard SecureCode provide an additional layer of protection from the card issuers themselves.
Durango's Fraud Prevention Services
Durango Merchant Services has a suite of cutting edge and common sense fraud and chargeback prevention technologies. If you are in need of a Merchant Account to process credit cards for your customers then please fill out our forms to set up a meeting with an account representative. If you’re business currently uses Durango Merchant Services gateway and you would like more information on our fraud prevention capabilites please contact your account manager.
MasterCard SecureCode is a private code for your MasterCard account that gives you an additional layer of online shopping security. Only you and your financial institution know what your code is – retailers aren’t able to see it. So you can trust that your transactions get independent approval every time.
This service is offered directly from Visa & MasterCard through our gateway to reduce online fraud; it will help protect the merchant from chargebacks for “FRAUD” codes, which are the most common type of chargebacks with card not present transactions.
This service can be used in conjunction with Verified by Visa and SecureCode, or by itself. Use our gateway’s internal fraud scrubbing engine, as well as your own rule-sets to monitor and prevent fraudulent transactions.
Use our Check21 processing solution for online transactions instead of eCheck and ACH. With eCheck and ACH, customers have 6 months to issue a simple dispute/chargeback. With Check21 processing, after 10 days, the burden of proof is on the customer to prove that fraud occurred, and the regulations are designed to protect the merchant from fraudulent customers.
