May 11, 2017
Visa’s Plan to Fundamentally Change the Chargeback Process and How the Industry is Reacting
By Monica Eaton-Cardone, founder and COO of Chargebacks911
Chargebacks are the product of a decades-old piece of legislation. While technologies, consumer preferences, purchasing options, and payment processes have changed drastically over the years, the chargeback process has experienced very little in the way of evolution.
However, new information from Visa indicates big changes are in store for everyone involved in transaction disputes. Visa’s Enhanced Dispute Resolution Process will definitely have a significant impact on e-commerce, yet for many people in the payments industry, the implications remain unknown.
What is the Enhanced Dispute Resolution Process?
Visa’s Enhanced Dispute Resolution Process is the term Visa now uses to describe a process formerly known as Visa Claims Resolution (VCR).
Visa outlined three objectives they believe will help reduce timelines, touchpoints and processes involved in dispute resolution.
- Use Visa’s internal data better
- Introduce automation where possible
- Streamline processes
Considering the Implications
The VCR process originally was scheduled for an October 2017 implementation in the U.S., but that was changed to April 2018, to coincide with the VisaNet Business Enhancements release. Currently, the VCR (renamed the Enhanced Dispute Resolution Process) is being tested by a select group of industry members.
While I love the idea of streamlining the dispute process (something I’ve supported for the last few years), there are a few issues VCR will undoubtedly encounter:
1. Frictionless Frenzy
Visa’s Enhanced Dispute Resolution Process is the network’s solution for a lack of standardization and compliance—which I agree is absolutely needed. As a result, the belief is that by removing friction and streamlining the dispute processes, everyone will benefit.
However, as history has demonstrated with the introduction of chargebacks as a protection mechanism, too much of a good thing does not always end well. Case in point: the idea of assigning automatic liability sounds great, but in reality, this may potentially lead to more abuse, in multiple directions.
How does this work? Let’s take the hot topic of frictionless payments. Unfortunately, there is no means for equal authentication between a mobile device and computer—at least not yet. But with the advances in frictionless checkout methods, we are inadvertently creating new consumer demands that are affecting the competitive landscape in e-commerce. The consumer wants to spend less time in checkout, whether they are in the store or online.
We want to create stronger authentication, which is in direct conflict with that demand. Here’s the bottom line: In order to have a fair and balanced system, with standards that do what they are intended to (solve a problem), friction is a requisite ingredient.
When the human element is involved in an equation, we have accepted a range of unpredictability. Automation is only effective to the extent where we can predict certain variables with absolute accuracy. Assigning liability on the basis that no information was or is available, in actuality, offers very little change from where we are today.
While the idea has merit, the application of automatic assignment can inadvertently create another, potentially larger, problem and begs further analysis. As Einstein said, “If I had an hour to solve a problem I’d spend 55 minutes thinking about the problem and five minutes thinking about solutions.”
2. Compliance Confusion
Visa’s current regulations are encompassed in an 806-page manual. The network has meticulously outlined the applicable policies for each nuance in the chargeback process. However, the overly-complex and always-changing guidelines are difficult for industry members to implement. Whether derived from confusion or an unwillingness to be burdened, there is a severe lack of compliance from all entities involved with transaction disputes.
In an industry that is already hard-pressed to follow rules that already exist, Visa’s Enhanced Dispute Resolution Process could be a dangerous misstep. We first need compliance, then streamlined processes.
Today’s successful merchant is very different from just five years ago and barely recognizable from 30 years ago when the foundational logic for governing disputes was created. Entire industries and verticals have emerged from the Internet, and until rules and regulations are created to address these differences, it is very unlikely that a modified layer of dispute processing rules will resolve a deeply rooted issue.
To still consider threshold limits to be the same for a card-present merchant as for e-commerce underscores the lack of attention to the core issue. And, as methods of trade and exchange continue to proliferate, we are challenged as an industry to address the vast difference between emerging consumer behavior–digital versus physical, continuity merchants versus others, and more.
Another key fact to consider is the subject of best practices–a topic that vastly differs between merchant segments and one which is, more often than not, ignored by the schemes. The travel industry became a success story after their collective lobbying efforts ultimately provoked segmented changes in the payment industry.
That revolution should have paved the way for a more relevant foundation for compliance for all. Without these strides being taken, VCR is less viable.
3. Lack of Education
The absence of proper disclosure, training and tools in an easy-to-digest format continues to be a rampant complaint among merchants and banks alike.
While Visa outlines policies for cardholders, issuers, acquirers and merchants, the network does not mandate any entity to undergo training that would enable compliance with these rules. For example, chargeback compliance is not a requirement for obtaining a merchant account—but it should be.
It is not advantageous for any card scheme to implement rules if the majority of those required to comply are afforded neither the knowledge nor the tools to do so. Any overhaul of the chargeback process needs to arm our citizens with fair rules together with the means for full compliance in order to provide more benefit than liability. We also must evolve over time without jeopardizing our core purpose.
Merchants and Issuers: It’s Time to be Proactive
Visa’s position is that these new regulations will help the network keep pace with the evolving demands of the payment industry, and industry experts are in general agreement that the archaic system is in need of drastic updates. However, evidence already exposes decided disadvantages.
In matters of dispute, acquirers and issuers should consider taking action sooner rather than later. Until an industry-wide effort is made to achieve universal compliance, any effort made on an individual basis will provide a distinct advantage when it comes to retaining and recovering revenue.
Monica Eaton-Cardone is a founder and the COO of Chargebacks911, a Clearwater, Fla.-based provider of risk mitigation and chargeback management services. She specializes in threat metric analysis, technology system development, e-commerce retention, and risk relativity. Eaton-Cardone is an award-winning entrepreneur and respected thought leader in the payments industry. As a former merchant herself, she understands the challenges businesses face on a day-to-day basis.