In the retail world, chargebacks are very similar to refunds in that:
- Successful sales are ultimately reversed.
- “Unhappy” customers get their money back.
Though unlike refunds, chargebacks aren’t something you implement on your end as a merchant.
Instead, they’re initiated by the customer — with or without your consent.
Thanks to consumer protection laws, starting the chargeback process is very easy for customers. A quick call to the bank or a simple click of the mouse is really all it takes, and the customer’s work is finished.
However, for you — the merchant — the process is just starting.
You are now committed to a lengthy resolution process during which the onus is on you to prove the sale was legitimate. This involves phone calls, emails, forms and documentation — all spread over many months. Some chargeback disputes can even take 150 days to resolve.
So, even if you win your case, you lose because of all the time-consuming back and forth.
Worse still, this song and dance must be repeated each time a new chargeback enters your system.
As already pointed out, it’s just too easy for customers to keep sending chargebacks your way. In fact, many consumers abuse this process by purchasing items with the deliberate intention of disputing these charges after the fact.
To help combat this type of “friendly fraud,” Visa has started to introduce new chargeback rules. Although these measures could help reduce friendly fraud across the board, they might also create more headaches for merchants.
Understanding Visa’s New Chargeback Rules
Every card brand, issuer, processor and country handles chargebacks a little differently. This lack of standardization creates unnecessary costs for the entire payment industry.
In 2017, Visa began rolling out a new chargeback system designed to simplify the process. Known as Visa Claims Resolution (VCR), this system places less emphasis on traditional litigation (i.e., back-and-forth disputes) and more emphasis on liability.
The rules themselves are complex (and you can read them here).
Though one way in which VCR could help improve the system is through automation.
Visa will use rules and workflows to screen chargebacks before they move onto the next stage. Automation will help the company weed out weak cases that consume resources.
This is a win for merchants, since you’ll only need to actively dispute chargebacks that pass a certain validation threshold.
However, some changes aren’t as welcomed.
1. Consolidated Chargeback Codes
Under the old rules, customer complaints fell under one of 22 categories. Yet now, these chargeback justifications are classified into four buckets:
- Consumer disputes
- Processing errors
This simplification could make things easier for everyone. Though some fear that more nuanced chargeback reasons will increasingly fall under the “fraud” category.
This means that even if you change nothing about your payment environment, you could rack up more fraud demerits on your record. Banks and processors might also change your “risk” level as a merchant.
2. Shorter Response Times
Under the old rules, merchants had 45 days during which to respond to new chargebacks. That number is now 30 days — and it will soon become 20.
Moreover, disputes used to last up to 150 days (sometimes longer). But with these rule changes, all cases will be closed within 70 to 100 days — depending on the chargeback code involved.
Faster resolutions may seem like a blessing, but remember that in every chargeback case, you’re the “defendant.” Thus, having less time to make your case is actually a bad thing.
Worse still, you only get one chance to make a good impression. With the new rules, merchants can no longer send amendments, updates or any additional documentation that might bolster their arguments. You’ve got to present all of your supporting evidence upfront — or not at all.
Keeping good records has always been important, but proper reporting and documentation are even more vital under the new VCR system.
How Merchants Should Prepare for These Chargeback Rules
The initial VCR rollout started in 2017 across select markets, but these rules became global in April 2018.
This means all current and future chargebacks fall under the new guidelines.
With that in mind, how do you retroactively prepare for these changes?
Well, again — proper documentation is critical. You need a payment processor that offers detailed reporting and analytics. This will allow you to quickly investigate every chargeback claim as you assemble whatever supporting evidence you need.
Arguably, the best defense involves reducing the number of chargebacks entering your system in the first place. We’ve written a companion article on this topic. In a nutshell, you should make sure every transaction benefits from:
- Clear and unambiguous product descriptions — so customers are never “confused” about the charges on their credit card statements.
- An unambiguous merchant name. If your store is called the “Acme Shop,” you don’t want your merchant name to be something unrelated — like “Zenith Brothers Incorporated.”
- Extra verification measures — especially for card-not-present sales. In addition to cardholder names, account numbers and expiration dates, you should request details such as AVS and CVV.
- Advanced fraud protection. Tokenization, point-to-point encryption and fraud filters are just some of the tools you can use to reduce credit card abuse.
Still have questions about Visa’s new chargeback rules? Are you worried about how these changes might affect your business?
We’re here to help. To get the answers you need, just schedule a free consultation with our merchant services team today.