The chargeback process has changed little since the Fair Credit Billing Act was enacted in 1975, protecting consumers against unfair credit card and billing practices. But in April 2018, that will change.
Visa’s global Visa Claims Resolution (VCR) initiative was created to help reduce the number of Visa chargebacks (or “disputes,” as they’ll soon be called), better manage the increased volume of payments being processed, and automate the dispute process to improve accuracy and efficiency.
Chargeback losses are predicted to top $31 billion by 2020, giving Visa ample incentive to implement new strategies to eliminate invalid disputes and simplify dispute processing.
But while this new initiative is a needed update to an old process, many merchants have questions about how it will affect them.
How the Dispute Process Is Changing
It’s clear this new initiative will have wide-reaching effects on the dispute and resolution process for merchants, issuers and customers. Let’s look at six ways this new initiative will change the way merchants conduct day-to-day business.
1. Basic Terminology Is Changing
Some of the basic wording traditionally associated with the chargeback process will be changing. For example, “chargebacks” become “disputes,” and “chargeback reversals” become “dispute reversals.”
2. The Merchant Response Timeframe Is Shorter
Merchants used to have 45 days to respond to Visa chargebacks; that response time will shrink to just 30 in April — and 20 days next year. Thanks to the new processes, Visa expects the time needed to resolve a dispute will shorten to approximately 30 days. The current average is closer to 46 days, with some resolutions requiring three months or more.
3. The Number of Chargeback Reason Codes is Reduced
Visa currently uses 22 reason codes to categorize chargebacks, but the new dispute process consolidates those codes into four categories:
- Processing errors
- Consumer disputes
Consolidating these reason codes will help streamline (and shorten) workflows by reducing the complexity of the codes.
One of today’s most frequently used codes — “Unrecognized Transaction” — is going away completely. In the past, it’s often been used as for chargebacks that aren’t easily categorized anywhere else. Now, these transactions will find their way into other categories, potentially temporarily inflating their numbers.
4. Merchants Can’t Challenge Every Chargeback
With the new rules, Visa Resolve Online (VROL) will make real-time initial liability assignments on fraud and authorization disputes. Merchants will be allowed to challenge these assignments only if they have compelling evidence to support their case that the chargeback is illegitimate.
Merchants will also now have just one opportunity to submit the proof they feel supports their claim that a transaction was legitimate; they can no longer add additional information after that initial submission.
Because merchants will now be limited in their ability to respond to disputes, it will be even more important for them to properly maintain every piece of transactional evidence.
5. Some Disputes Will Be Automatically Eliminated
Visa’s new process will automatically reject disputes that are deemed invalid, like:
- Dispute requests from customers that have exceeded the established time limits
- Disputes filed from confirmed fraudulent accounts that have more than 35 e-commerce disputes in a 120-day period
- Disputes that don’t meet the merchant’s criteria for a valid return (e.g., the merchant has already issued a return).
By reducing the number of disputes in the pipeline, efficiency will improve and response times will decrease.
6. The Dispute System Is Now Liability Based
The current chargeback process is litigation-based. This means the process functions similarly to a trial, with parties making accusations, presenting evidence and pleading their cases, and the bank making the final ruling.
This process will change to a liability-based system in April, meaning the dispute system will automatically assign liability to as many cases as possible.
For some transactions, like when the sale was already refunded or was processed using a 3D secure solution, liability will automatically shift to the issuer, and the dispute will be stopped.
How Merchants Can Prepare for the Change
With a streamlined dispute process, merchants should get data and have disputes resolved faster — and that can mean less of a chargeback lag affecting a merchant’s bottom line.
And while that’s good news for merchants, it also means they need to:
- Have all their documentation readily accessible, so they can submit it in a timely fashion and all at one time.
- Be prepared for inflated fraud levels as the “Unrecognized Transaction” code goes away and agents better categorize disputes.
- Take proactive steps to avoid disputes in the first place — like using clear payment descriptors, responding quickly to customer concerns, and using AVS and CVV2.
As e-commerce evolves, the payment industry must keep pace — and so must merchants. Although keeping up with constantly changing regulations can be a challenge, it’s critical for ensuring the growth of a merchant’s bottom line.
Does your business understand how it will be affected by this initiative that’s designed to help protect your business against the growing threat of chargebacks? Contact a ClearSale credit card fraud analyst today to learn more about what merchants can expect to see in April and how our multilayered approach to e-commerce fraud can offer guaranteed protection against chargebacks.