Change looms large for chargebacks.
It looms large where losses are sizable: Chargebacks will cost merchants an estimated $31 billion by the year 2020, according to The Nilson Report.
In response, Visa is changing its network rules to simplify the path to dispute resolution and, more precisely, to identify chargebacks related to fraud, those related to friendly fraud and those triggered by unfamiliar coding on customer statements that, by default, result in a customer claiming they don’t recognize the charge.
Under terms of the Visa Claims Resolution (VCR) rule change, which will take effect in April 2018, there’s a boost to automated processes, with Visa using data in real time through its already extant Visa Resolve Online (VROL) to determine liability through automated checks.
On the merchant side, however, a few challenges could emerge: The nearly two dozen chargeback reasons now offered to consumers are being reduced to just a few – spanning fraud, processing errors, authorization and consumer disputes. The intent is to streamline the process from the typical several weeks (in more contentious disputes, it can take as long as 100 days) down to just 20 days – but change can be bumpy.
In an interview with Karen Webster, Julie Fergerson, SVP of industry solutions at Ethoca, said that the overarching goal of the initiative is to ensure that the right people are being charged when there is, in fact, liability.
“One of the challenges in the system that needs ongoing improvement is that if the cardholder says it’s fraud and ‘I didn’t do it,’ because of Regulation E [of the Electronic Fund Transfer Act] and Regulation Z [of the Truth in Lending Act], the issuers have to give those cardholders back their money … it’s just the process,” Fergerson explained.
The Visa rule change, she said, “is an evolutionary improvement” that should improve the situation for issuers and merchants, but it is not a revolutionary change where the system is being overhauled and it is instantly clear who has the fraud liability.
The part of the process that is going to change (which could potentially impact merchants most urgently) is the specificity or reasons for the disputes.
One is “do not recognize” (known as a Code 75) – a chargeback code that is being removed, at least in its present incarnation, as a reason for dispute rather than a claim of outright fraud. Fergerson said that the unintended consequence of that move is that consumers who truly don’t recognize a charge will have no choice but to mark the nature of their dispute as fraud. Thus, the standard 22-character descriptor, where there is simply not enough information to jog the customer’s memory of a legitimate purchase, may lead to knotty problems for merchants down the road.
In response, Fergerson said some issuers may opt to keep the “do not recognize” choice live, but will do their own forensics on transactions behind the scenes. As might be expected, all chargeback claims are used to train fraud models, she said, which will have an impact on downstream acceptance.
Of course, there are positives in store, said Fergerson. Cardholders will get their disputes answered more quickly, merchants will get data faster and the process will be significantly streamlined.
Visa has said that for most fraud and authorization disputes, VROL will determine an initial liability assignment, which will come in real time. Acquirers and merchants, in turn, will be granted the ability to respond if certain conditions are met, spanning compelling evidence, invalid data or credit that has already been issued.
Within the dispute pantheon, processing errors and consumer disputes get a designation to a workflow known as collaboration, where the standard chargeback dispute roadmap holds sway and parties can resolve the outstanding dispute themselves or submit to Visa’s arbitration process.
For merchants, the re-presentment process is streamlined too, but in a different way: Now, they will get only one shot to offer up the data that proves a transaction was legitimate. As all claims will be handled through Visa’s new process, merchants have 30 days to respond to a Visa chargeback, compared to the previous 45-day timeframe.
Under the revamped rules, disputes will pass through automated workflow, which checks whether the dispute is centered on 3D-secure authorized transactions, whether the holder disputed the purchase after the allotted timeframe or if a refund has already taken place. Liability is automatically assigned to the merchant, which leaves some firms in a tough spot when, for example, someone’s kid is charging items on their parents’ Amazon account, unbeknownst to them.
Visa’s process seeks to eliminate invalid chargebacks right off the bat – for example, by denying chargeback requests from customers that are past the stated time limits. With fewer disputes in the pipeline (and those that are in the pipeline vetted as legitimate disputes), efficiency should improve.
In the case of disputes that do go forward, data is of the essence. To that end, Fergerson spoke of several innovations Ethoca is working with issuers to implement, including one that allows issuers to look up descriptors and get a copy of the transaction receipt so they can explain to the cardholder what they purchased. Fergerson said the focus is to craft solutions that give issuers and cardholders the information they need so they can better sort out what’s on their statements – and dispute only the charges that truly aren’t theirs.
Looking ahead to this time next year, Fergerson predicted that there will be some early adopters in 2018 who will start to show the full consumer receipt in online statements or on mobile applications, which will drive change.
“I hope to see the issuers empowered to better understand what really happened in a transaction,” Fergerson emphasized.
To sign up for the digital discussion: What You Don’t Know About New Chargeback Rule Changes Can Hurt You, on Jan. 30 at 1:00 p.m. EST, click here.