Sarah is a Marketing Manager at Clearsale and has been with the company since 2012. During that time, she has developed deep knowledge about fraud prevention. She brings extensive expertise in planning, marketing, go-to-market strategy and sales experience, thanks to a background that spans financial planning, controlling and analysis. She previously spent 5 years with Proctor & Gamble, and she holds bachelor and master degrees in Business with great distinction from a top Brazilian business school.
Finally, the antiquated chargeback system is getting a facelift. The new Visa Claims Resolution initiative (VCR), which will go into effect in April 2018, will transform Visa’s entire chargeback dispute process. The result will hopefully be a huge reduction in time and hassle for e-merchants and consumers alike.
That doesn’t mean the transformation will be easy. The initiative, though long overdue, still leaves merchants with the burden of learning and complying with the extensive new guidelines.
Let’s look at what we know along with the benefits and challenges e-commerce merchants can expect.
Expected Changes to the Dispute Resolution Process
Visa is concentrating on three objectives they believe will simplify the chargeback process:
- Improve the way Visa uses their internal data
- Automate the chargeback workflow wherever possible
- Streamline processes and reduce resolution timeframes
To achieve these goals, Visa is significantly altering the touchpoints and processes currently followed in chargeback disputes.
Here are just a few of the biggest changes merchants can expect next spring:
Updated Liability-Based Dispute Model
The dispute process used to be a litigation-based model similar to a court trial, in which one party accused the other, both sides presented evidence and Visa made a ruling.
The new liability assignment model will be much more straightforward, with both sides presenting their evidence upfront and the responsible party assigned the blame.
Currently, some chargebacks can take more than 100 days to resolve. With the new VCR initiative, Visa wants to reduce this timeframe to just 31 days.
One way they plan to accomplish this is by requiring additional transaction information up front, which Visa anticipates will reduce the amount of back-and-forth between the merchant, acquirer and issuer.
However, merchants may be alarmed to find that Visa is also planning on reducing the window in which merchants can respond to Visa chargebacks – from 45 days down to 30 days.
Consolidated Chargeback Reason Codes
Visa will group its current 22 chargeback reason codes into four dispute categories:
- 10 Fraud
- 11 Authorization
- 12 Processing Errors
- 13 Consumer Disputes
Although this is primarily a cosmetic change (the evidence needed to support the chargeback remains essentially the same), these categories will help reduce the dispute process’s complexity.
What Does a Streamlined Chargeback Process Mean for Merchants?
All these changes sound great for simplifying the dispute process — but how will they impact businesses?
For starters, we believe more legitimate disputes will be processed. This is good news, as it means merchants will spend less time defending themselves against invalid chargebacks – such as chargebacks that are processed after the merchant has issued a return to the customer or when too much time has elapsed since the purchase.
In the past, issuers would consider all customer disputes; none were automatically rejected.
That will change with Visa’s new automated processes. Visa will now evaluate a chargeback to determine its validity, apply criteria for each dispute category, and block disputes that don’t meet those criteria — reducing the overall number of disputes that progress through the system.
Visa’s new dispute platform, Visa Resolve Online, also offers an Integrated Merchant Purchase Inquiry plugin that gives merchants the opportunity to avoid disputes entirely by providing supporting documentation or immediately issuing a customer credit.
This will not only impact the number of disputes in process, it will also eliminate the chargeback lag merchants know so well and the accounting challenges that come with it.
But as merchants find themselves facing more legitimate chargebacks, and as the timeframe for responding to these chargebacks shrinks, merchants will need to establish procedures to treat every chargeback seriously and promptly.
Challenges to the New Chargeback Initiative
Visa hopes that by streamlining the dispute process from beginning to end, everyone will benefit.
But new processes don’t come without challenges.
While this new system will improve the credit card dispute resolution process overall, it will take some effort for merchants to acclimate to the new system. Potential headaches include:
Although merchants and issuers strive to create a seamless shopping experience, the growing need for security inevitably leads to friction. Fraud protection solutions and the chargeback process inherently add some friction — but that means the security standards are doing what merchants need them to.
Increased Need for Compliance
Few, if any, merchants have likely read the 800-plus-page Visa regulation manual in its entirety. While comprehensive — there’s a process for nearly every chargeback situation — these complex and evolving guidelines make it difficult for merchants to fully understand each aspect of the dispute process.
And with a constantly evolving business environment, including new verticals and industries and the explosion of m-commerce, Visa’s new regulations run the risk of becoming outdated before they’re even implemented.
More Comprehensive Approach to Documentation Storage and Retrieval
With the new VCR initiative, merchants need to keep thorough and accessible documentation as evidence in the event of a chargeback claim. Merchants should establish standard processes for saving transaction records and ensure the information can be quickly retrieved. Business owners should also familiarize themselves with the new evidence guidelines and chargeback processes to ensure compliance and increase their chances of success against friendly fraud.
Improved Need for Education
To make sure they understand the nuances of the new policies, merchants should take the time to study them. The courses available through Visa Business School, such as “Understanding Dispute Resolution” and “Enhanced Dispute Resolution Rules Under Visa Claims Resolution (VCR),” can help merchants understand how to best manage disputes and the requirements to follow during arbitration.
As e-commerce changes with technology, so must the payment industry. Keeping pace with evolving regulations is a challenge for merchants — but it’s one well worth the effort.
Learn how a multilayered approach to CNP fraud can protect your business against the threat of chargebacks — guaranteed. Contact a ClearSale credit card fraud analyst today!