Understanding Visa's New Chargeback Rules

In the world of commerce, chargebacks are very similar to refunds in that: 

• Successful sales are ultimately reversed. 
• “Unhappy” customers get their money back. 

But unlike refunds, chargeback disputes aren’t something that businesses initiate. Instead, they are initiated by the customer directly — with or without your consent. 

Thanks to current consumer protection laws, starting the chargeback dispute process is very easy for customers. A quick call to the bank or a simple click of the mouse is really all that is required, and the customer’s work is finished. 

However, for you — the business owner — the process is just beginning.

You are now committed to a lengthy resolution process during which the onus is on you to prove the transaction in question was legitimate. This involves phone calls, emails, forms and documentation — all spread over multiple months. Some chargeback disputes can even take up to 150 days to resolve. 

So, even if you win your chargeback case, you still lose because of all the time-consuming back and forth that is required. 

Worse still, this song and dance must be repeated each and every time a new chargeback dispute enters your system. 

As we pointed out above, it’s just too easy for customers to keep sending chargebacks your way. The fact is that many consumers outright abuse this process by purchasing items with the deliberate intention of disputing these charges after the fact. 

To help combat this type of “fraud,” Visa has implemented new chargeback rules this year. Although these measures can help reduce this type of fraud across the board, they might also create more headaches for merchants.

Understanding Visa’s New Chargeback Rules

Every card brand, card issuer, payment processor, and country handles chargeback disputes 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 new 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 different categories. Yet now, these chargeback justifications are classified into four buckets: 

• Consumer disputes 

• Processing errors 

• Authorization 

• Fraud 

This simplification could make things easier for everyone. However, 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. Meaning that banks and payment processors might also change your underwriting “risk” level to a higher risk merchant. That could lead to increased processing rates and fees, and in severe cases, that could mean being declined from approval of a new merchant account.

2. Shorter Response Times

Under the old rules, merchants had 45 days during which to respond to new chargebacks. The new number is now 30 days — and it will soon be reduced to 20 days. 

Moreover, disputes used to last up to 150 days (sometimes longer). But with these rule changes, ALL cases will be settled and 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 dispute, you as the business owner are 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 crucial under the new VCR system. 

How To Best Prepare for These New 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 these 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. In a nutshell, you should make sure every transaction benefits from: 

• Clear product descriptions — so customers are never “confused” about the charges on their credit card statements. 

• An unambiguous DBA 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. 

We're Here To Help

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 contact us today. We can discuss your current payment environment and offer helpful suggestions on how you can better protect your business from chargeback disputes.

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Visit us online at www.TailoredTransactions.com or call us direct at (888) 669.1686