Attention high risk merchants: Visa chargeback rule changes coming April 15

High risk merchants, particularly those of the e-commerce sort, need to gear for another set of Visa Chargeback rule changes, effective April 15, 2018. Chargebacks, especially fraudulent ones, have been becoming more frequent over the last five years, evidenced by two significant amendments Visa has made over the last three years.

• In December of 2015, Visa announced it was cutting its threshold – in other words, its tolerance – in half from 2 percent of sales or 200 chargebacks incurred per month, to 1 percent/100 per month. The move forced high risk merchants into scrambling to place more emphasis on chargeback mitigation and customer support.
• Roughly a year later, Visa implemented a ‘pre-monitoring’ program for merchants who hover near the 1 percent/100 threshold. For merchants at or above a chargeback rate of 0.75 percent of sales or 75 per month, didn’t receive fines or fees, but were issued a warning.

By serving the two notices, merchants had no choice but to simply re-think their business practices, emphasize customer support and become more responsible business owners. Allowing chargebacks to merely be ‘the cost of doing business,’ is no longer acceptable.

Visa’s chargeback rule changes: The big stuff

In its perpetual effort to stamp out fraud while maintaining that ever-delicate balance between consumer and merchant obligation, Visa is making four major chargeback rule changes, which will especially affect high risk merchants:

1. Reason codes replaced with dispute conditions

Gone are the 22 chargeback reason codes, which will be replaced with four dispute conditions:

• Fraud (10.0)
• Authorization (11.0)
• Processing errors (12.0)
• Consumer disputes (13.0)

Beneath those four conditions will be revised reason codes. For example, fraud reason codes include EMV Liability Shift Counterfeit Fraud (10.1) and Non-Counterfeit Fraud (10.2); Other Fraud-Card Present Environment (10.3) and Card Absent Environment (10.4); and Visa Fraud Monitoring Program (10.5).

2. Transaction Not Recognized (Reason Code 75) eliminated

This is a subject on which we’ve blogged ad nauseum. Cases such as ‘transaction not recognized’ will now fall under Fraud Disputes (10). Transactions not recognized is arguably the most common reason a merchant sustains a chargeback, and it can be avoided with due diligence such as having a clear billing descriptor, stellar (and prompt) customer support, using CVV2 and AVS checks. Additionally, merchants – e-commerce and brick-and-mortar – need a clear and prominent return policy on the front page of a website or in-store. A return is always the preferred outcome opposed to a chargeback.

3. Changes in merchant time frame: From 45 days to respond to 20 days

While merchants currently have 45 days to respond to chargeback disputes, they will have 30 days to respond as of April 15. However, though a date has not yet been announced, it is expected to reduce merchants’ 30-day window to 20 days to respond.

Thus, resolution processes will be estimated differently:

• 31-70 days for chargeback disputes in the Fraud and Authorization categories
• 31-100 days for those in the Processing Errors and Consumer Disputes categories

4. New limits for Issuers on fraudulent e-commerce chargeback disputes

In a move that emphasizes merchants to be vigilant in defending fraud attacks, credit card issuers can dispute no more than 35 card-not-present transactions on a confirmed fraud account within a 120-day period. Moreover, said issuers have the liberty to choose which transactions – highest ticket to lowest.

The desired outcome

The outcomes of Visa’s recent chargeback rule changes will take time to identify, but one goal is clear: Having the credit card issuer (Visa) working with and collaborating more with merchants and consumers. Previously, merchants by and large felt that Visa’s chargeback scheme heavily favored the consumer. Thus, if the new rules can give the merchant a stronger voice in disputes, it will be a welcome change.

Solutions for high risk merchants — That’s what we do

Instabill is known for two things:

• Our banking resources for high risk merchants
• Our live, one-on-one customer support

With a 10-minute phone call, our merchant account experts can walk you through the application process, and detail what fees and rates for which you will incur. Speak with a merchant account manager today at 1-800-530-2444.