The biggest buzzword in business and credit processing for years has been Chargebacks. The Nilson Report estimates chargebacks costing merchants $31 billion by the year 2020. This is huge for big business and crippling for small merchants. Corporate monsters have cushion in their profit to absorb the impact of fraud, but for a small business a few chargebacks can mean the no more ballet lessons or family vacations.
Visa is attempting to simplify dispute resolution by identifying chargebacks quicker and streamlining the process. Under terms of the Visa Claims Resolution (VCR) rule change, which will take effect in April 2018, there’s a boost to automated processes, with Visa using data in real time through its already extant Visa Resolve Online (VROL) to determine liability through automated checks.
As a merchant, though, a few challenges could emerge. There are dozens of chargeback codes right now that are about to be eliminated – forcing something as simple as a customer not recognizing the merchant’s code to be coded as fraud. The part of the process that is going to change (which could potentially impact merchants most urgently) is the specificity or reasons for the disputes.
One is “do not recognize” (known as a Code 75) – a chargeback code that is being removed, at least in its present incarnation, as a reason for dispute rather than a claim of outright fraud. Fergerson said that the unintended consequence of that move is that consumers who truly don’t recognize a charge will have no choice but to mark the nature of their dispute as fraud. Thus, the standard 22-character descriptor, where there is simply not enough information to jog the customer’s memory of a legitimate purchase, may lead to knotty problems for merchants down the road. Some issuers may choose to keep the “do not recognize” choice live, but will do their own forensics on transactions behind the scenes.
Of course, there are positives in store, said Fergerson. Cardholders will get their disputes answered more quickly, merchants will get data faster and the process will be significantly streamlined. For merchants, the re-presentment process is streamlined too, but in a different way: Now, they will get only one shot to offer up the data that proves a transaction was legitimate. As all claims will be handled through Visa’s new process, merchants have 30 days to respond to a Visa chargeback, compared to the previous 45-day timeframe.
Under the revamped rules, disputes will pass through automated workflow, which checks whether the dispute is centered on 3D-secure authorized transactions, whether the holder disputed the purchase after the allotted timeframe or if a refund has already taken place. Liability is automatically assigned to the merchant, which leaves some firms in a tough spot when, for example, someone’s kid is charging items on their parents’ Amazon account, unbeknownst to them.
Visa’s process seeks to eliminate invalid chargebacks right off the bat – for example, by denying chargeback requests from customers that are past the stated time limits. With fewer disputes in the pipeline (and those that are in the pipeline vetted as legitimate disputes), efficiency should improve. This is good for merchants as consumers have less time to forget what they purchased. When it is a more recent transaction, consumers are more likely to remember what happened and less likely to dispute.
In the case of disputes that do go forward, data is of the essence. To that end, several innovations are being worked on with issuers to implement, including one that allows issuers to look up descriptors and get a copy of the transaction receipt so they can explain to the cardholder what they purchased. Fergerson said the focus is to craft solutions that give issuers and cardholders the information they need so they can better sort out what’s on their statements – and dispute only the charges that truly aren’t theirs.
Looking ahead to this time next year, Fergerson predicted that there will be some early adopters in 2018 who will start to show the full consumer receipt in online statements or on mobile applications, which will drive change. If people can identify what they actually purchased, this will help to identify what they bought and what they didn’t.