Because we are a high risk credit card processor, we deal with several business types (and many of their merchants) that are plagued by high chargeback and return rates. Tech support, online dating, multilevel marketing and travel come to mind, among several others.
So our attention spiked when Visa announced it was halving its chargeback threshold effective 1 January 2016, and again when it declared it was overhauling its protocol for processing chargebacks in February 2018. The chatter around the high risk world included many theories – some knee-jerk, some legitimate – but each with merit:
- We’re going to see several industry types fail, like the aforementioned.
- Merchant account approvals are going to be more difficult to obtain.
- High risk merchants have no choice but to adapt and comply.
- Collaboration between merchant and acquirer must improve.
Recently we read about a survey of 500 merchants — each affiliated with a popular chargeback resolution firm — 78 percent of which claim that their chargeback rates have dropped since Visa overhauled its protocol. It is welcome news, especially since Visa’s changes in recent years were substantial.
We’ve also read that Visa isn’t finished with its chargeback protocol amendments — there are more coming in 2019.
What’s different with Visa’s chargeback protocol?
Where do we start? There are many differences, thus we’ve chosen what we feel are the most significant.
- Firstly, merchants have 30 days to respond to chargebacks (opposed to 60 days in the previous format). We’re expecting the 30-day window to be reduced to 20 in the near future.
- Reason codes reduced from 22 to four: fraud, authorization, processing errors and consumer disputes, each with 10-12 sub-codes, with the goal of streamlining efficiency.
- Specifically, the very popular ‘Transaction Not Recognized’ code now falls under the fraud category.
- Card issuers are prohibited from disputing more than 35 CNP transactions on a confirmed fraud account within a 120-day window, which prompts merchants to be vigilant in defending their businesses from fraud attacks, not just chargebacks.
The survey: What are merchants doing right?
In the old days of chargebacks, merchants could declare them as ‘the cost of doing business,’ and not even acknowledge them, simply writing them off, so to speak. Most merchants did, unfortunately. As a high risk credit card processor, we strongly advise against it.
After Visa’s protocol overhaul last April, merchants must acknowledge chargebacks but can still decide not to challenge them (which is very risky, considering the limit is 1 percent of sales or 100 chargebacks per month — half what it used to be).
Thus, 78 percent of the surveyed merchants indicated their chargeback rates have fallen between 15 and 18 percent (with a 13 percent reduction in friendly fraud disputes).
So what is working?
- Shorter windows, timelines: Again, merchants have 30 days from the time of the chargeback to respond. A shorter response window, we feel, has been a catalyst for merchants to fight back, knowing they are on the clock.
- Collaboration with acquirers: Visa’s nearly one-year-old protocol emphasizes merchants working with their acquiring banks to address chargeback issues. Help from acquirers and more collaboration makes simple sense as everyone in the ecosystem wins when the merchant is processing credit card transactions fluidly.
- Visa is serious: With a significantly more strict chargeback protocol, it’s easier than ever for a merchant to lose their business and fall on to the MATCH list. From what we’ve seen and read as a high risk credit card processor, we think there is a renewed, genuine concern merchants have about remaining on the good side of their acquirers and the card brands. Moreover, merchants are usually charged a fee for every chargeback that they fail to acknowledge or lose in the resolution process. Fees can be as high as $50 per from some high risk credit card processors.
There is still work to do
While 78 percent of merchants reporting lower chargeback rates is impressive, the survey also yielded two findings regarding chargeback protocol awareness that are mildly troubling:
- Only 12 percent of merchants surveyed were aware that Visa requires merchants to acknowledge chargebacks.
- Perhaps more alarming is that 84 percent of the merchants were unaware that they received fines for every chargeback lost or unacknowledged.
Instabill: A high risk credit card processor that keeps merchants processing
Since the major credit card brands have each declared war against high chargeback rates, Instabill is partnered with a one of the best chargeback management firms in its industry, and can refer merchants upon notice. A sound high risk credit card processor keeps its merchant partners accepting payments – everyone wins when merchants are processing payments fluidly.
To find out more about our merchant account solutions, speak with a live expert at 1-800-530-2444, Monday through Friday, 8 a.m. until 6 p.m., US eastern time.
