For the first time ever, we saw industry officials begin to consider the impact of chargebacks on merchants. With this greater awareness, institutions and card schemes are finally taking steps to try and address false consumer claims and fraudulent chargebacks.
The introduction of the Visa Claims Resolution initiative (VCR) in April was a significant development in this direction. VCR was designed to streamline and simplify the chargeback process, reduce instances of chargeback fraud, and standardise the system for processing claims.
However, even though 33% of merchants report a positive decline in their disputes, some 25% saw an increase in the first six months under VCR. The net result appears to end with an increase in chargebacks.
Examining 2018
We took a closer look at the real effect of VCR in our initial impact report: Beyond VCR, conducted six months after Visa’s rollout. We found that the vast majority of merchants said the VCR did not improve the current chargebacks landscape or the disputing process. Additionally, 42% report that disputing chargebacks is now more difficult than before, while 44% have not seen much difference in dispute recovery rates.
Issues to overcome
The changes had been flagged to merchants and banks well in advance of their introduction, yet more than one-in-three of the merchants we surveyed said they were unaware of VCR. Around 36% of the merchants who claimed to be informed of VCR were not aware of the additional fines imposed if they failed to respond to every chargeback. Roughly the same percentage were unaware of the new, shorter deadlines for responding to claims.
On the other side, 84% of merchants who were aware of the fines report responding to – and thereby accepting – nearly all chargeback disputes. “Insufficient time” was the main culprit (76%) when identifying the reason some merchants chose to accept liability on all disputes as a result of VCR. For those merchants, who were better suited to cope, approximately 40% claim VCR had no effect on their recovery rate (“win rate”). This suggests that merchants were managing chargebacks more proactively once they realised they could face penalties for failing to act promptly – but accepting liability across the board as a result of this pressure may be doing more harm than good.
When a merchant accepts liability, the assumption is made that the merchant is accepting blame from a valid issue, such as fraud or error. Statistically, up to 7 out of 10 disputes may be the result of an invalid claim (ie not a valid issue, something that was misunderstood or miscommunicated by the cardholder or their bank), thus the funds are recoverable to the merchant – but only if additional casework is processed in time. Without correct feedback from the merchant, the issuer must assume that 10 out of 10 were valid claims; meanwhile, the merchant suffers an unjust result.
We can conclude that the system is effective for merchants that understand how it works and have the resources and technology to properly identify and dispute any chargeback they find to be invalid.
More from Mastercard in 2019
Further significant changes will take place next year, most notably the restructuring of Mastercard’s dispute operations and the roll out of Mastercard Dispute Resolution Initiative, which will mirror the changes made by Visa in April 2018.
Mastercard already began rolling out these changes in October with a slight adjustment to its reason code system. These preliminary changes mean late presentment is now a condition for authorisation-related chargebacks, and requires issuers to ask for more information from cardholders before they can file disputes related to ‘cardholder does not recognise’ claims.
However, we expect Mastercard to differentiate itself from VCR by having the merchant bring evidence to the table straight away, without having already been assigned blame for chargeback-causing errors.
It’s hard to predict exactly how these changes will affect the current state of chargebacks, especially as Mastercard hasn’t announced its full changes yet. We can anticipate similar results for both initiatives: the changes address some issues, but won’t necessarily reduce the overall dispute figures if merchants aren’t clued in on how to use the processes to their benefit.
Coming soon: More data security
Following in the footsteps of GDPR, we can expect to see more data rules, regulations and initiatives coming into play for anyone sharing information.
Looking further in the US, we will see more from the California Consumer Privacy Act (CCPA), which will come into effect from 1 January 2020. CCPA will give consumers the right to ask a business to disclose details of the personal information it collects – where the information is sourced – the commercial reasons for gathering or selling this information, and with whom it is shared.
While similar to GDPR, CCPA doesnt guarantee consumers in California the right to opt-out of data collection entirely, although the rule may be applied to a much wider range of data. This could impact the ability of businesses to collect and analyse customer data and behaviour.
Rounding up 2018
It’s important to sit back and assess the card payment landscape at the end of each year, considering the most common timeframe for a chargeback is 32-60 days after a transaction. As a result, we see an annual spike in the latter half of January through February, as the influx of holiday sales become post-holiday chargebacks. Merchants need to be aware of their options for reducing their exposure to this trend and prepare to identify the wrongful among the genuine disputes.
To find out more about how to use the recent changes from Visa to reduce your payment disputes, download our latest guide.
About Monica Eaton-Cardone
Monica Eaton-Cardone is an international entrepreneur who provides sustainable revenue retention and risk reduction solutions to the ecommerce environment. She is the co-founder and COO of The Chargeback Company, known as Chargebacks911 outside Europe.
About The Chargeback Company
The Chargeback Company, known as Chargebacks911 outside Europe, provides comprehensive and highly scalable solutions for chargeback compliance, handling services, and fraud strategy management. The company helps decrease the negative impact of chargebacks, thereby increasing revenue retention to help ensure sustainable growth for every member of the payment channel.
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