Visa has just changed how it addresses the process for disputes on transactions, otherwise referred to as chargebacks.
Known as Visa Claims Resolution (VCR), the change affects all claims that result from processing errors, cancellations, requested money back for a misrepresentation of goods or services, or fraudulent transactions, including friendly fraud and false claims.
This change does not eliminate chargebacks, but VCR does reduce the time frames to resolve disputes by inserting rule automation and technology to address the complexity of the changing dispute codes during the submission process.
The expectation is that this will help to simplify the dispute process, but it’s possible that these and other factors may cause impediments to the merchant’s dispute responses.
The impact on issuers and merchants
Under VCR, merchants have only 30 days to initiate a dispute response, provided they can present compelling evidence in time to prove the dispute is invalid.
The reduced time frame is further complicated in that merchants receive notice of a dispute via their acquiring bank or payment service provider, which in turn must have time to process the dispute response back to Visa.
This all adds up to the fact that acquirers, payment service providers, and retailers are now under greater pressure to present their respective evidence to Visa within the new, restricted time frame. This demand emphasises the need for merchants to use an integrated payment solution that enables a quick and efficient response to disputes.
In general, there has always been the opportunity, if not the expectation, for the merchant to provide additional supporting information to prove that the consumer did authorise the charge. However, with VCR, banks could be facing a challenge. This is because in many instances the new process does not allow merchants to respond to a dispute to prove as a legitimate purchase – and neither does it provide issuers with any mechanism to analyse the details of a transaction to help identify the legitimacy of a claim.
It is vital for merchants and issuers to foster communication to allow for a payment solution that enables ongoing merchant-issuer collaboration. When merchants and issuers share data and collaboratively communicate with the consumer, they can help prevent unwarranted disputes from proceeding.
Another fundamental change generated by VCR is the consolidation of 22 chargeback reason codes (which define reasons for a claim) into four dispute categories: fraud and authorisation (allocation workflow); processing errors and consumer disputes (collaboration workflow). These new categories were created to reduce the complexity of the current dispute process.
A particularly important change is the retirement of chargeback reason code 75 for “transaction not recognised”. One of the most commonly used codes, issuers have relied on it to obtain sufficient information to confirm fraud.
The new dispute categories also require issuers to assign a more specific reason for the dispute up front to save processing time further down the line. The impacts of the reason code retirement does not change the fact that many consumers dispute purchases simply because they do not recognise the purchase, based on a limited merchant description. More fraud claims will be submitted as consumers state that the purchase was not authorised.
Transaction not recognised
One of the biggest benefits of the new, simplified system is that it automates many aspects of the dispute process, including eliminating invalid disputes where possible and screening submitted disputes to ensure they meet the necessary criteria for the dispute category to which they will be assigned.
However, a great concern for merchants and issuers is that the retiring of Reason Code 75 may encourage more friendly fraud claims. Because the root cause may remain with the cardholder who does not recognise the transaction, the cardholder is inclined to see no recourse but to file a dispute.
Previous Reason Code 75 disputes will be assigned under the Allocation workflow. This presents a challenge to merchants because is assigns automatic liability to be placed on them, and the possible removal of automatic rights to represent or proceed with the dispute process.
Because of this, it is imperative that merchants and issuers are prepared to quickly identify fraudulent chargeback activity from genuine claims, and ensure they have efficient processes in place to prevent and respond to disputes.
To that end, innovative solutions in the payment industry that facilitate accurate and timely exchange of pertinent transaction data between the merchant and the issuer can further reduce or resolve disputes more efficiently, minimise the negative financial impacts of fraud and friendly fraud, and help retain more sales.
By Gabe McGloin, head of international merchant sales, Verifi Inc
This article first appeared on BankingTech.com on July 2nd, 2018.