Visa Claims Resolution and Merchant Liability

At last  - The ‘Beast from the East’ has given way to an African heatwave! Which is great news for retailers, since better weather motivates consumers to refresh their wardrobes, book holidays and spruce up their homes. All good things for merchants.

However, a rise in spending also leads to a rise in chargeback claims (the return of funds to a consumer following a dispute related to the original purchase), coming at a time when merchants are going to have to deal with the rollout of the new Visa Claims Resolution (VCR) rules.

By introducing the new VCR programme, Visa hope to reduce the time frames associated with chargebacks, thereby reducing merchant, issuer and Visa costs and the number of overall transaction disputes.

What changes has VCR introduced?

Its first move has been to consolidate 22 chargeback codes (which are effectively given reasons for a claim) into four dispute categories: Fraud, Authorisation (Allocation workflow), Processing Errors, and Consumer Disputes (Collaboration workflow).

Reason code 75, otherwise known as “Transaction Not Recognised”, has also been eliminated, which may result in an increase of friendly fraud, underscoring the importance of maintaining detailed records on transactions and customer communications, in case you need to conduct a dispute response.

VCR has also introduced two new methods of investigating disputed transactions: ‘Allocation’ and ‘Collaboration’.

What is VCR Allocation?

The Allocation workflow will address the new fraud and authorisation dispute categories. Visa automatically manages these disputes by conducting an initial review of the dispute and then determining how to proceed.

Under the Allocation workflow, Visa will use three key factors to determine how to process the dispute:

1. Is the disputed charge a 3D Secure authorised transaction?
2. Was the dispute filed within the disputed time frame?
3. Has the disputed transaction been refunded?

If any of the above questions are true, Visa blocks the dispute and prevents it from moving forward in the chargeback process. This new approach should result in fewer disputed transactions for merchants.

However, merchants need to understand their responsibility when Visa does not block the dispute and allows it to continue through the dispute process. Merchants will be liable for the disputed transaction and will not have automatic rights to proceed with the dispute response process.

Under VCR, merchants can only initiate a dispute response when they can provide compelling evidence that the dispute is invalid. This emphasises the need for merchants to use an integrated payment solution that enables a quick and efficient response to disputes permitted to move forward. Because of how fraud and authorisation disputes are reviewed, merchants should use fraud detection technologies such as CVV, AVS, and 3D Secure during the payment authorisation process. This helps to prevent automatic approval of fraud and authorisation dispute categories, which will prevent the dispute from proceeding.

What are the changes to VCR Collaboration? 

‘Collaboration’ is similar to what was originally in place, except for three changes:

• “Chargebacks” are now called “disputes” and “representment” is now known as “dispute response.”
• The time frame for a dispute response has been reduced from 45 days to 30.
• Rather than 22 different reason codes, there will now be 24 dispute conditions divided into four categories.

How to prepare for a VCR dispute response

Be ready for friendly fraud disputes. With the removal of reason code 75, friendly fraud claims could increase. Merchants must be prepared to defend against friendly fraud disputes and review how easily they can collect key evidence, including delivery receipt, authorisation confirmation, clear display of refund/review policy, etc.

Be ready to respond. The shortened time frame for a fraud or authorisation dispute doesn’t leave much time to collect and review compelling evidence. Because the Allocation workflow places liability on the merchant, it’s important to be prepared to collect and provide this compelling evidence in advance.

Don’t forget customer service. Remember, the customer service team is a merchant’s first line of protection against a dispute. Make sure your team follows recommended best practices to help prevent unnecessary disputes.

Focus on merchant-issuer communication. By using a payment solution that enables merchant-issuer collaboration, everyone wins. When merchants and issuers share data and collaborate to communicate quickly with the cardholder, discerning valid sales and true fraud claims will help to prevent unwarranted disputes from proceeding.

Shorter time frames, updated workflows and simplified reason codes place new demands on merchants in the chargeback process. Proactive merchants will use VCR as the catalyst to review and improve how they manage cardholder interactions – and see the opportunities that change can bring.

Merchant-issuer collaboration platforms enable merchants and issuers to share and access transaction details when cardholders query a purchase. Sharing this information at the initial query stage can dramatically reduce disputes, saving the time, money and the resources required to stop a chargeback.