Chargebacks are inevitable for online merchants. But the good news is that they can be fought and won. To do this, you need to understand the chargeback process, rules, and regulations for the different card networks.
Visa leads all credit card networks and is projected to have $5.1 trillion in annual purchase volume by 2023. As such, merchants have a higher chance of handling chargebacks from Visa than other card networks.
But because Visa updates its chargeback regulations regularly, it can be difficult to keep up. To help you create an effective chargeback management strategy, you need to know some basic Visa chargeback rules.
It’s a reversal of a transaction amount by an issuing bank after a cardholder files a claim on a Visa card transaction. The issuing bank debits the merchant account and temporarily credits the cardholder pending further investigation. Starting several years ago, Visa stopped referring to these as chargebacks and started calling them “disputes.”
After receiving a chargeback notification, merchants can opt to issue a refund or fight the dispute through representment. During representment, the merchant sends the issuing bank compelling evidence to prove the disputed transaction is legitimate.
The issuing bank can either reverse or sustain the chargeback based on the evidence. If either party is dissatisfied with the decision, the chargeback goes into arbitration, where Visa makes a ruling.
Whether a merchant wins or loses a dispute, they’re usually hit with a chargeback fee. This fee is applied by acquiring banks to incentivize merchants to prevent chargebacks. The fee amount varies depending on the payment processor and whether the merchant operates in a high-risk industry or not.
The Fair Credit Billing Act (FCBA) requires credit cards to provide cardholders with a process to dispute incorrect and fraudulent charges.
The FCBA was enacted in 1974 to limit consumer liability and shield them from unfair billing practices. Although the FCBA has specific provisions like a 60-day time limit for cardholders to dispute a charge. However, it still allows issuing banks and card networks to develop custom rules to handle chargebacks.
Chargebacks strengthen cardholders’ confidence in credit card purchases, knowing that their liability for the actions of fraudsters, deceptive merchants, and identity thieves is limited. Unfortunately, some cardholders find and exploit loopholes, allowing them to commit friendly fraud.
Visa has grouped its chargeback reason codes into four dispute categories:
This category includes transactions disputed due to fraud:
This category includes disputed transactions that were processed despite a declined authorization, a card recovery bulletin, or without authorization.
These disputes include transactions with:
This category deals with transaction problems between the merchant and cardholder, including:
Methods for preventing disputes depend on the type of chargeback that is being dealt with. But generally, having clear and easy-to-find billing descriptors, excellent customer support, and effective fraud prevention tools is recommended.
You can use the reason code to understand the reason for the dispute and the compelling evidence to send if you choose to fight it.
For legitimate cardholder claims, reason codes offer good information, but you should still research more on why the chargeback happened. But for illegitimate claims, the reason code doesn’t give the real reason for the dispute. To determine the problem, you need to examine customer interactions, transaction details, and business practices.
Some common Visa reason codes include:
Under this code, the cardholder claims they didn’t authorize or weren’t involved in the card-not-present (CNP) transaction. It can be because their card details were stolen, or they didn’t recognize or forgot the charge.
Cardholders use this reason code when they believe the amount charged isn’t what they agreed upon. It can be caused by data entry errors or misunderstandings on taxes and fees included in final costs.
The cardholder claims they were charged twice for the same purchase.
Cardholder claims their item wasn’t delivered. Possible reasons include the merchant not delivering the merchandise, late delivery, or billing before shipping the merchandise.
These claims are made when the merchandise was defective or damaged upon arrival or when the merchandise didn’t match the description.
This reason code is used when a merchant hasn’t processed the agreed refund.
The cardholder claims they returned an item or canceled a service but didn’t receive a refund.
Compelling evidence during representment is intended to prove the transaction is legitimate. Some examples of compelling evidence include:
Although chargeback processes are similar across different card networks, the details, including deadlines, reason codes, and evidence requirements, differ. Visa dispute guidelines are great reference, but specialized help is needed to keep up with the constant updates.
A full-service chargeback mitigation solution, Justt helps merchants navigate the complex jungle of chargebacks and card processing.
Generally, merchants have 30 days to respond to Visa disputes. The 30 days are measured from when the chargeback was filed.
Visa has three merchant chargeback threshold categories:
It helps customers recognize their transactions and makes identifying and remembering the order placed easier. This helps to reduce the risk of disputes due to customer confusion.
VFMP is a Visa program designed to encourage merchants with high numbers of fraudulent transactions to contain the problem. Merchants that surpass set thresholds are subject to extra fees.
Generally, VDMP is a program designed for merchants with high chargeback ratios, while VFMP is for merchants who process a high number of fraudulent transactions.
Merchants in VDMP face strict operating restrictions, a $50 fee per chargeback, and must create a chargeback mitigation plan. Merchants who cannot reduce their chargeback ratio within set deadlines receive a $25,000 review fine.
A merchant has to reduce their chargeback ratio below Visa thresholds and maintain it for three consecutive months.