April 15 is a big day for American taxpayers and this year it's a big day for merchants and card issuers, too.
That's the date when Visa rolls out its new worldwide dispute-management process,
It's a major overhaul of the way the brand's ecosystem accepts, processes, and tracks chargebacks, and it's been live in New Zealand and Hong Kong since last October. Although VCR will require merchants to learn some new rules and routines, the changes are good news for merchants who know what to expect.
There is upside for merchants, especially card-not-present (CNP) merchants who are particularly vulnerable to the rising tide of e-commerce fraud.
The first benefit merchants may notice is an overall reduction in chargeback (dispute) requests. That's because “enhanced dispute rules” created by Visa will make better use of existing data to kick invalid dispute requests—an estimated 15% of the total—out of the system before they reach the merchant. Merchants will also be able to confirm credits they've issued in the system so those dispute requests don't escalate further.
Visa has also streamlined and reduced the number of disputed transaction categories. Now, instead of contending with 22 chargeback request reasons, there will only be four categories for disputes: fraud, authorization, processing errors, and consumer disputes. Within each bucket there are subcategories, but the overall organization is simpler and easier to deal with.
In particular, the broad “transaction not recognized” (TNR) reason is absent from the new system. Any disputed transaction that fits that description will now be sorted into the fraud category. While at first glance it might seem that this switch would inflate merchants' fraud numbers, the TNR category was effectively a catchall for possible fraud anyway, so the simpler terminology should make it easier to identify potential fraud at a glance.
VCR will also improve the way Visa, issuers and merchants share information about confirmed fraud in hopes of limiting merchant losses. The Visa Merchant Purchase Inquiry tool can alert merchants when an issuer confirms a fraudulent transaction so the merchant has the option to stop the order if it hasn't already shipped, suspend the account to prevent further fraud, and reach out to the cardholder. The merchant can also note their choice of fraud response in the system to keep everyone on the same page.
Of course, these benefits come with new responsibilities for all parties, including merchants. The two most important changes merchants must be ready for are a shortened window for responding to dispute requests and a corresponding need for better automation of data management and retrieval.
Once VCR takes effect on April 15, merchants will have 30 days to respond to dispute requests, down from 45 days under the current rules. Visa says the goal is to settle disputes faster, with fewer back-and-forth communications needed to handle each request. But that shorter time frame also means merchants must have supplemental transaction data, such as copies of receipts and proof of delivery, ready to share quickly.
For merchants who have to search multiple databases to find what they need, and those who still rely on paper files that must be hand-searched and scanned for sharing, the time to transition to more streamlined digital recordkeeping is now. Merchants must be able to locate their supporting data fast or risk losing disputes they might have otherwise won.
Despite the need to assess and possibly improve transaction records, and the need to respond faster to dispute requests, the change to VCR is a good thing for merchants. With fewer invalid disputes landing on merchants' to-do lists, they'll be able to better focus on valid disputes, respond more quickly to reported fraud, and devote more time and attention to the core of their business.
