Credit card chargebacks are an arduous process, and they’ve become more frequent and more costly. In the next two years, chargeback losses are expected to top $31 billion.
Visa is hoping to improve the chargeback process by rolling out its new Visa Claims Resolution (VCR) initiative in the U.S. The change is a fundamental shift in how chargebacks are handled, and now is the time to prepare your merchants for what lies ahead.
Already in place in Hong Kong and New Zealand, VCR promises to standardize and shorten the chargeback process. It moves from the current litigation-based model to a liability-assessment model based on solid data surrounding a claim.
Most immediately, merchants will notice a change in terminology. Chargebacks are now known as “disputes” and representment will be replaced with the term “dispute response.”
When a cardholder reverses a previously processed charge, they’re opening a dispute. When they dispute a transaction on their statement, the card issuer is responsible for collecting information from them. If the dispute is considered valid, it’s categorized and sent to the payment processor. If the processor chooses to submit evidence to support the validity of the charge, they begin the dispute response process. Visa then determines who will absorb the cost of the transaction.
Dispute categorization is also dramatically changed. Instead of 22 chargeback reason codes, there will be just four categories: Fraud, Authorization, Processing Errors, and Consumer Disputes. That means one of the most widely used codes, #75: “Transaction Not Recognized,” is gone. The card issuer is tasked with categorizing the dispute.
Fewer categories and requiring a more specific reason for a dispute up front, is expected to reduce the processing time.
In fact, one of the biggest goals of VCR is to speed up dispute resolution. As such, merchants should know the timeframe for the dispute process is being cut by one third. In the past, merchants had 45 days to respond to a chargeback. VCR reduces that window to 30 days.
VCR also provides significant operational savings to merchants, acquirers, and issuers by automating aspects of the dispute process. For disputes categorized as Fraud and Authorization, Visa will use data to make an automated, real-time liability assignment decision. Disputes categorized as Processing Errors or Customer Disputes will not go through an automated process.
According to Visa, VCR offers merchants two major benefits:
In the past, chargebacks took an average of 46 days to resolve, and more contentious issues could take 100 or more days. VCR promises more automated and streamlined processing and, in some cases, less need for multiple cycles of back and forth to exchange information and documentation. This should allow for quicker dispute resolution; Visa now expects average resolution will be 30 days or less.
Now is the time to prepare your merchants for the two changes from VCR most likely to affect them—reduced response time frame for disputes and strict response requirements for fraud and authorization chargebacks.
Merchants must respond more quickly to disputes than before. In the past, merchants could take up to 45 days to make an initial response to a dispute. Resolution could take up to 150 days to complete.
Under VCR, the initial response window has been shortened to 30 days. Complete resolution can take only 31 to 70 days for fraud and authorization disputes, and 31 to 100 days for processing errors and customer disputes.
Next year, the 30-day initial window will be reduced to just 20 days.
Also, merchants must provide more evidence when they dispute a chargeback than was typically required in the past.
If cardholders claim they didn’t receive a product or service, evidence may consist of receipts, delivery confirmation, or a product/service description that states the delivery method and date. If cardholders say they were charged multiple times for services, evidence may include multiple receipts proving the charges are valid. If cardholders claim a transaction was fraudulent, evidence may be documents proving the merchant couldn’t have known the transaction was fraudulent (delivery/shipment information, AVS verification by the processor, or other information showing the merchant’s actions were sufficiently cautious).
With such significant changes afoot, it’s important to help your merchants audit their current process for dispute resolution and make sure they’re ready for VCR. That means consolidating their payment gateway processor data into one centralized location.
Prepare Your Merchants
Prepare your merchants for the changes by arming them with our Chargeback Guide. You can download this free resource when you click on the blue tab on the bottom right corner of this page. This easy-to-read guide summarizes the card brands’ documentation. We outline the 5 most common chargeback scenarios and what your merchants need to have on hand to successfully dispute them according to VCR.