How Visa Claims Resolution (VCR) Changed the Chargebacks Ecosystem

Visa Claims Resolution (VCR) rolled out in 2018 and impacted the entire payments ecosystem. The card network wanted a streamlined and much more automated payment dispute resolution process that would be easier and faster for all parties when dealing with payment reversals.

To that end, Visa took its 22 legacy dispute codes and replaced them with new reason codes divided into four different categories belonging to two workflows. The first two categories are Fraud and Authorization and belong to the Allocation workflow. The last two categories are Processing Errors and Consumer Disputes, which belong to the Collaboration workflow. Some 60 percent of payment disputes are Allocation-related, while 40 percent of disputed transactions are Collaboration-related.

Allocation automates the determination of chargeback liability based on Visa’s internal data. With Allocation, a chargeback that proceeds to the acquirer goes directly to Pre-Arbitration if the acquirer disputes liability. The idea was to cut out a round of back and forth between the issuer and acquirer. Visa also conducts a series of automated checks to determine whether the disputed transaction is 3D Secure authenticated, has already been refunded or if the transaction was disputed after the allotted time frame. In any of the above cases, Visa is supposed to block the dispute as an invalid chargeback, significantly reducing the volume of chargebacks’ outstanding.

Collaboration is essentially the same as Visa’s old method for dealing with chargebacks. With Collaboration, the acquirer can dispute a chargeback with a representation and the issuer disputes the Representment with a Pre-Arbitration filing. Fundamentally, nothing has changed with the process itself.

One of the self-proclaimed goals of VCR was to cut down the number of days it took to resolve a payment dispute. To attain this goal, VCR reduced the timeframe for the initial response to a dispute from 45 days to 30 days. Now, instead of taking up to 150 days to resolve a payment dispute it takes up to 70 days for Allocation cases and up to 100 days for Collaboration cases. Visa also no longer allows merchants to default to no response in reaction to a chargeback. Merchants must accept or contest liability, or they face penalty fees for lack of response. Visa used VCR as an opportunity to reduce the volume of chargebacks as well. VCR requires issuers to proactively review associated transactions (credits, reversals, adjustments) before filing a payment dispute. These transactions are identified looking at historical transactions with similar characteristics using Visa’s authorization, clearing and settlement systems. Should an associated transaction render the payment dispute invalid the chargeback is rejected before it is filed and no chargeback defense is needed, saving both the issuer and acquirer a lot of admin work. Visa also phased out the previously popular “unrecognized” reason code (number 75), forcing issuers to help cardholders identify the transactions they are contesting and categorizing them with greater detail.

VCR has limited the use of fraud as a source of chargebacks as well. Cardholders are now only allowed up to 35 fraudulent chargebacks on the same card within 120 days for card-not-present transactions. With VCR, it is up to the issuer to decide if they want to shut down an account once fraud is reported. However, failure to close an account prevents the issuer from filing fraud disputes on any new transactions on that account, across all merchants.

Despite the streamlining of the chargeback process by VCR, many merchants still find it difficult to stay atop all the requirements and deadlines. The cut in the initial dispute response time and penalization of no merchant response have emphasized the need for professional chargeback management. For merchants who wish to return their focus to their business there is Justt – a full chargeback mitigation solution. Justt’s solution is tailor-made for you to ensure industry-leading success rates. Our semi-automated chargeback solution builds the strongest case evidence in the market while providing a hands-off experience for customers. At the same time, we offer win-win pricing, where we get paid a percentage only when you win a case, so you can use us risk-free.