News, Education and Events Decoding Digital Payments & Fraud

News, Education and Events Decoding Digital Payments & Fraud

Visa Changes Its Chargeback ‘Naughty List’ in 2016

By Karisse Hendrick, Editor-at-Large,
Visa Changes Its Chargeback ‘Naughty List’ in 2016

While a small volume of chargebacks can be a cost of doing business in a card-not-present world, a high volume of chargebacks—from a card-network perspective—could indicate fraudulent transactions not being canceled, customer service issues or network rules not being followed. As a result, each card brand monitors the number of chargebacks a merchant receives to ensure they do not breach certain thresholds. When a merchant exceeds a card brand’s acceptable ratio of chargebacks to sales, the brand may place the merchant on an excessive-chargeback monitoring program. Each network has a different set of thresholds and different methods to calculate risk and program eligibility.

Once a merchant is placed on a program by a network, it [hide for=”!logged”]has a certain length of time in which it can address the problem or else it faces fines and, possibly, not being allowed to accept that card brand.

Traditionally, Visa has had two different excessive-chargeback programs for merchants: one for domestic U.S. transactions—known as the U.S. Merchant Chargeback Monitoring Program—and the other for international transactions—called the Global Merchant Chargeback Monitoring Program. Because each program had a different threshold and monitored transactions in different geographic regions (each with unique risk profiles), it has been possible for a merchant to qualify for one program but not the other. The threshold for each program has been as follows:


The New Deal

After January 1, 2016, Visa will combine both programs into the “Visa Chargeback Monitoring Program” (VCMP) and will use the threshold created for the U.S. program: in excess of 100 chargebacks a month AND a chargeback ratio of over 1 percent to sales will land a merchant on the combined program. The ratio is calculated by dividing the number of Visa chargebacks received in the current month by the number of Visa sales processed in the current month. This could mean that more merchants will be receiving a notice of participation in the new VCMP in 2016.

Visa has also updated the timeline under which fines are implemented. As of the first of the year, the network will issue an early warning to merchants whose chargeback volume exceeds 75 per month and that are close to the one-percent threshold. The months in which merchants receive such warnings will not count as months on the program. Once a merchant reaches the threshold, Visa will issue a notification to the merchant’s acquirer, which is responsible for notifying the merchant and working together to implement a chargeback-reduction plan. Visa provides time for a merchant to implement the reduction plan and produce results. However, if a merchant has been in the VCMP for more than five months, it is subject to large fines. If the merchant remains on the program for several months after this, its right to process credit cards may be terminated.

Avoiding the Program

Because most chargebacks counts toward a merchant’s chargeback threshold, the best offense is a good defense. Preventing chargebacks from happening at all is the best way to reduce chargeback volume. This can be done through employing more fraud-prevention methods, strong communication with customers at the time of check out, ensuring customer-service contact information is easy to find on your site and offering more refunds to consumers when asked.

A full analysis of the root causes of your chargebacks can help you determine the methods that will reduce them. For example, if the bulk of the your chargebacks are due to fraud, review your fraud-prevention strategies and systems to see if they need strengthening, especially during the time chargeback volume is over one percent. You can also work with a company that offers pre-chargeback notifications, giving you an opportunity to issue a refund prior to the chargeback being processed.

Accentuate the Positive

Card networks developed excessive-chargeback programs to ensure merchants are doing what they can to prevent the customer dissatisfaction that typically results in issued chargebacks. While being included in these programs can be extremely painful and inconvenient to merchants, they were designed with consumers in mind. By providing stronger fraud prevention and customer service, most merchants will be able to avoid these lists.

Merchants may find themselves on this list due to a sudden spike in fraud, but once the issue is addressed, they typically are not on these programs for long. If you find your business qualifies for the updated requirements of Visa’s unified “naughty” list, don’t pout. Concentrate on chargeback prevention and you’ll return to the “nice” list once again.[/hide]

Daniel Leibovitch