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In recent years, processing the growing number of credit card chargeback claims among consumers has become a burden for Visa. The time and money associated with processing all of these claims has led the company to overhaul the old model and rollout a new process to address chargebacks. The proposed changes went into effect just last month, and not all merchants understand what this means for their businesses.
Why Change the Credit Card Chargeback Process?
According to their official document outlining the changes, “With the number of disputes rising, and processing time and costs increasing, Visa is excited to introduce the Visa Claims Resolution (VCR) initiative. To improve the efficiency of handling disputes, Visa is focused on automating and simplifying the dispute-resolution process while also keeping pace with the needs of the payment industry.” Simply put, they’re trying to make the system faster, easier, and less costly.
How Will the Changes Impact Merchants?
Here are a few of the new rules from the VCR that all merchants need to be aware of:
New Reason Codes Have Been Created
The existing reason codes have been broken into four categories (fraud, authorization, processing errors and customer disputes). Although the reasons have been consolidated, the VCR document makes sure to note that “Visa will continue to provide the same level of data received today and, in some cases, additional data to help merchants understand the reason for the dispute.” So this categorization should simply clarify the nature of the disputes, enhancing the merchant’s ability to respond appropriately.
Two Categories for the Disputes Have Been Created
The two new categories classify the previously mentioned codes under either ‘allocation’ or ‘collaboration.’ A merchant’s role in the dispute differs based upon which category it is assigned to.
- Allocation - is intended for disputes associated with fraud and authorization. During the automated check in the allocation process, Visa will determine factors such as whether the cardholder raised the dispute after the amount of time they are allowed, if 3-D security was used or whether a refund for the charge has been issued. If any of these scenarios has occurred, Visa will block the dispute, and prevent it from becoming a chargeback.
- Collaboration - mostly applies to consumer disputes and processing errors. It is referred to as collaboration because the acquirer, issuer and merchant are expected to work together to resolve the situation. Not much differs in the new collaboration category aside from one notable change: a shorter resolution period.
Shorter Resolution Period
In the past, merchants had 45 days to respond to chargebacks. “Visa has enhanced the dispute resolution rules to improve efficiencies and simplify the dispute resolution process,” says Newtek’s EVP of Relationship Management, Tom Harkin. “This will mean that merchants will have less time to respond to a chargeback and they need to provide clear and concise documents to support their case. Otherwise, they will lose the chargeback.”
The shortened span of time--just 30 days--is intended to streamline the period and speed up the process. The hope is, the new rules will help to resolve chargebacks in as little as 31 days, rather than the previous average of 46.
What to Keep in Mind
During the collaboration process, you as the merchant must still prove transactions are valid in order to avoid a chargeback. According to a recent article in Digital Transactions, merchants are finding success by building “a solid case with as much information as possible when disputing a chargeback claim.” This can mean collecting (Address Verification Service) AVS information, screenshots, and transaction dates.
A time-saving option to help fight future chargebacks is to use an eSignature authorization product at the time of a credit card payment. A digital signature solution should allow a customer to sign at the time of payment via mobile phone, chat conversation or desktop application. It should also offer a detailed audit report of the time, date, signature and geolocation information of a payment (this is the piece that will help you fight chargebacks).
Although these Visa rules are intended to reduce the amount of chargebacks your business receives, the best course of action is to minimize your risk up front. A comprehensive audit report of the consumer’s payment consent may dissuade a scammer from filing a fraudulent dispute. After all, if there is proof the payment was made from their home address, it’s difficult to deny.
Asking for AVS, requiring the card verification number (CVV), and offering automatic receipts with purchases can also lower the risk of an unauthorized transaction slipping through. Also note that some chargebacks occur when consumers don’t recognize how your business is listed on their bank statement. Be sure the description is easily recognizable to avoid this type of dispute claim.
Download our Chargeback Prevention tip sheet for a quick-glance guide to avoiding chargebacks in your business.