August 10, 2017
By Artem Tymoshenko, CEO, Maxpay
Visa has announced that it will be adopting a new global dispute resolution process, called Visa Claims Resolution (VCR). Merchants are preparing for the April, 2018 changeover. While many of the processes will remain the same, the changes will have a significant impact on how merchants deal with disputes and the chargebacks that can result.
Why was an overhaul needed?
Chargebacks are the bane of any merchant’s business. There is nothing worse than spending time and money marketing your product, finally making the sale and then finding out that you will not be paid for it. Currently, when a chargeback notice comes in for whatever reason, the merchant is required to respond or forfeit the purchase price, along with a hefty chargeback fee.
This process currently takes an average of 46 days to complete and more complex disputes can take months. For small merchants especially, this is a very stressful process.
As the middleman, Visa wanted to simplify the chargeback process for both cardholders and merchants and reduce resolution times.
How will VCR make the process better?
VCR will reduce the number of disputes that merchants have to deal with, while tightening up on the compelling evidence required from merchants to dispute the ones that make it through their filters.
Many disputes should not even make it to the merchant. VCR will verify each dispute to ensure that it meets minimum criteria before a chargeback can be issued. This means merchants will not waste time with invalid chargebacks. It will also ensure that adequate information is provided on the chargebacks that make it through the filters, so merchants can respond quicker and with more thorough arguments.
What will change under VCR?
Under VCR, the reason codes for disputes will change, although the reasons themselves will remain largely the same. Once the reason is determined, disputes will be assigned to one of two workflows: allocation or collaboration. If a chargeback is issued, merchants will then have just 30 days to respond, down from the current 45-day limit.
Allocation Workflow: All fraud and authorization disputes will be filtered through the allocation workflow. This largely automated workflow is expected to handle the bulk of disputes and determine if they are:
- authorized via 3D Secure
- issued after the allowed dispute window
- already refunded previously
If any of these checks are positive, the dispute is declined and a chargeback is not issued—meaning the merchant will not be required to respond. Visa hopes that the majority of allocation chargebacks will be filtered by this process, eliminating needless interaction between merchants, acquirers, and issuers.
If all three points are negative, however, a chargeback will be issued and Visa will hold the merchant responsible, unless it can prove the chargeback is invalid. Merchants will not even be able to launch a representment case for the chargeback unless they can comply with Visa’s yet-to-be-released rules and regulations.
Collaboration Workflow: Processing error and consumer disputes will be assigned to the collaboration workflow. This process will remain similar to the current dispute process and allow parties to resolve issues themselves or submit to arbitration by Visa as they have in the past.
The largest change here is the new, more detailed dispute questionnaire issuers must fill out, which will provide more information for each dispute up front, simplifying communication and reducing resolution times.
What should merchants do to prepare for VCR?
While merchants likely will have far fewer chargebacks they need to respond to, they will be held to more rigid standards when they do respond. Becoming familiar with Visa’s new operating rules and regulations when they become available will be essential. Not only will this allow merchants to proactively prevent disputes by being more vigilant at checkout, it also will allow them to prepare compliant representment cases when the need arises.
For merchants who are ready for the changes, VCR should equate to lower losses to friendly fraud and prevent consumers from using the dispute processes to circumvent return policies. On the other hand, the increased rigidity will make it more difficult to respond to disputes in a casual way. Everyone is hoping that the increased rigor required on both sides will automate away many of the trivial payment issues that exist today and allow businesses to focus on servicing customers rather than looking for fraudsters.
Artem Tymoshenko is CEO of online payments provider Maxpay. He has experience in financial sectors including international acquiring, payment systems, processing systems, e-money, risk management, network and system security, digital Self-Service and e-billing.