How Visa Chargeback Rules Impact Merchants
Visa chargeback rules make up a framework for seeking fair and efficient resolution between merchants and Visa cardholders. These regulations govern all aspects of the chargeback process. They determine every step, from outlining when and how chargebacks may be filed, all the way through to issue resolution.
All major card networks have similar rules and procedures for chargebacks. The system plays an important role in consumer protection, but the sheer complexity of the regulations can be overwhelming to merchants. The rules are complicated; worse, they can differ widely from one card network to the next.
An incorrect understanding of these rules can have a disastrous impact on retailer revenue. Knowing how these rules work—and the differences between networks—is crucial. In this post, we’ll take a look at Visa chargeback regulations to, hopefully, understand the reasons behind the rules.
Important note: Visa has recently decided to refer to chargebacks as “disputes” in their official publications. That said, “chargeback” is still the more recognized designation within the industry. For this article, we use both the terms interchangeably to refer to a chargeback.
What is a Chargeback?
Visa describes the chargeback—or dispute—as a way of giving issuers a channel for undoing a disputed transaction. In simple terms, chargebacks are forced payment reversals initiated by the cardholder’s bank. You can think of them as mandatory refunds that happen without the merchant’s consent.
If a chargeback seems legitimate, the cardholder’s issuing bank must return the transaction to the merchant’s acquiring bank, officially disputing the dollar amount of the transaction. Visa chargeback policies state that the acquirer then investigates the circumstances of the transaction to see if the chargeback is valid. If it is, the funds are removed from the merchant’s account and returned to the cardholder’s account.
In some cases, a merchant may be allowed to challenge a dispute; we’ll cover this more a bit later in the article.
Visa Chargeback Rules: Security
Some of the most important Visa chargeback regulations deal with the protection of cardholders’ personally-identifiable information. For example, Visa requires all clients to use Transport Layer Security (TLS) version 1.2 encryption to connect to any Verified by Visa hardware. TLS 2 is more secure and looks to become the accepted standard, as Apple, Google, Microsoft, and Mozilla have all announced that their browsers will cease support for TLS 1.0 and 1.1 as of March 2020.
The company has also moved to secure recurring payment situations. While not strictly a Visa chargeback rule, they mandate such payments be marked by one of the following classifications:
Ongoing payments on a fixed schedule; music streaming is a good example.
Storing card data to facilitate future “one-click” payments.
Services with subscription payments (television streaming channels, for example) that also offer single-click payments for other services (like pay-per-view events).
Failure to comply with this stipulation could lower the odds of reversing a chargeback dispute and may garner a penalty fee from Visa.
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Visa Chargeback Rules: VCR
In 2018, Visa rolled out a new global dispute process titled Visa Claims Resolution, or VCR. The new system was designed to reduce timelines and simplify the chargeback dispute process by shifting from the old litigation-based model to a liability assignment model.
In simple terms, the new Visa chargeback policies consist of rules that streamline and speed up the resolution process:
- The timeframe for merchant response was shortened from 45 days to 30 days.
- Certain invalid chargebacks are now automatically rejected before processing.
- All cases are now routed through one of two workflow tracks, depending on the type.
- The 22 legacy reason codes were consolidated into four basic dispute categories.
- Merchants are restricted in their ability to challenge fraud and authorization chargebacks.
Obviously, this is only a summary of the rule changes, but a detailed analysis is beyond the scope of this article. Anyone with additional questions concerning VCR should check out our post entitled “20 Questions & Answers About Visa’s New Chargeback Dispute Process.”
Visa Chargeback Rules: Order Insight
Chargebacks typically start when cardholders don’t recognize a transaction on their Visa monthly statement. Ideally, they would—and should—call the merchant at this point, but it’s understandable that the initial reaction might be to contact the card-issuing bank to see if the transaction was valid. According to Visa chargeback policies, the issuer’s first response should be to try and answer the cardholder’s questions. Hopefully, this will make it possible to identify whether a valid chargeback situation exists.
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In some instances, Order Insight (formerly the Visa Merchant Purchase Inquiry, or VMPI) can provide a “hard stop” at this stage, preventing inquiries from turning into chargebacks. For merchants enrolled in the tool, initial inquiries are answered in real-time, and automatic responses immediately provide additional information.
This information—called a transaction inquiry response—has the potential to recognize and automatically deny certain invalid cases. Order Insight even allows merchants to issue a credit straight to the cardholder if this is the best way to resolve the situation.
As with VCR, the nuances of the tool are too much to fully cover here. More information can be found in our post, “How VMPI Helps Merchants Stop Chargebacks.”
Visa Chargeback Rules: Retrieval (Copy) Requests
There are situations where Order Insight does not apply, or questions cannot be answered by the bank. When this happens, the issuer sends an electronic “retrieval request” to the merchant’s acquiring bank. The acquirer will then either return a copy of the signed transaction in question (if available), or request a receipt copy from the merchant, then forward it to the issuer.
Whether the receipt comes from the merchant or the acquirer, Visa chargeback rules mandate that certain information be present on the receipt:
Required for Electronic Point-of-Sale Terminal Receipts
- Acquirer Reference Number
- Account Number or Payment Token
- Transaction Date
- Description of Goods or Services, or Transaction Amount in the Transaction Currency
- Merchant Category Code (MCC)
- Applicable Retrieval Request reason code
- The signature obtained using an electronic capture device
- US Region only: For Preauthorized Health Care Transaction, a copy of the Order Form
All the responses in this process must happen within a tight timeframe, dictated by Visa chargeback regulations. The acquirer has just 30 days from the date it receives the retrieval request to return a receipt copy to the issuer. If the acquirer must request the receipt from the merchant, the merchant’s response window will be even shorter.
When sending the receipt copy to the acquirer, merchants should secure and maintain any proof of delivery (registered or certified mail receipt, record of electronic transmission, etc.) for at least 120 days.
Visa Chargeback Rules: Representment
Receiving a chargeback is never good news. As we mentioned earlier, though, there are some circumstances where merchants may be able to resolve the issue without losing the sale. The representment process allows merchants to provide additional information that could cancel out the cardholder’s complaint.
Unfortunately, one of the more confusing aspects of chargebacks is that the given reason for the dispute, and the true reason, are often different. Visa chargeback policies state that all challenges to disputes must reflect the given reason (such as “Item Not as Described). That’s the case even when the merchant suspects the true reason to be something else (such as cyber-shoplifting).
In other words, the merchant must fight on two fronts: the alleged reason the cardholder gives, and the true reason (which the merchant may not be able to prove). Some chargebacks may be reversed, but that’s unlikely to address any long-term/repeat occurrences of friendly fraud.
Visa Chargeback Rules: Compelling Evidence
Representment gives merchants the right to challenge a dispute. The key here is to present “compelling evidence” that contradicts the cardholder’s claim.
As defined by Visa chargeback rules, compelling evidence is proof that the cardholder:
- took part in the transaction; and
- took delivery of the merchandise or services, or benefitted in some other way as a direct result of the transaction.
Visa chargeback rules are quite specific on what they will accept as compelling evidence. For example, consider this list of allowed supporting documentation for Merchandise Not Received:
- A credit or Reversal issued by the Merchant was not addressed by the Issuer in the Dispute
- The Dispute is invalid
- The Cardholder no longer disputes the Transaction
- Documentation to prove that the Cardholder or an authorized person received the merchandise or services at the agreed location or by the agreed date/time
- For an Airline Transaction, evidence showing that the name is included in the manifest for the departed flight and it matches the name provided on the purchase itinerary.
- Compelling Evidence
Once some form of compelling evidence is presented to the issuer, the bank must certify that the cardholder was contacted. Unless the issuer can provide an acceptable reason for continuing the dispute, the case is closed. In that event, the money for the transaction will be returned to the merchant’s account.
Visa Chargeback Rules: Refunds and Returns
Another one of Visa’s chargeback regulations mandates that merchants have clearly defined refund, return, and cancellation policies, all of which are easily accessible to customers. This works to the merchant’s benefit, as misreading a business’s refund and return rules is one of the most common reasons cardholders give for disputing a transaction.
Merchants can protect themselves by demonstrating that such policies are prominently displayed, clearly written, and readily available to all customers. Visa says it will support the merchants’ policies so long as those policies are clearly disclosed to cardholders.
Here are examples of proper policy disclosure that Visa will accept:
For card-present transactions
Disclosure statements should be legibly printed on the face of the transaction receipt, close to the cardholder signature area (or a similar area easily seen by the cardholder) Copies of return, refund, and credit policies mailed or electronically transmitted to the cardholder may be considered proper disclosure. The merchant must show that the cardholder received and/or acknowledged the policy, though..
For card-not-present transactions
The merchant’s refund policy must be clearly and prominently displayed. The policy should have a “click to accept,” or other acknowledgment buttons, checkbox, or spot for an electronic signature. This can either be on the pages right before checkout or displayed on the checkout screen, near the “submit” button.
Time for Change?
The entire chargeback system was not designed for eCommerce. The Visa process exists for a pre-internet era but barely changed over the decades. The prevalence of friendly fraud is proof the current process is easily subverted for illicit gain.
While Visa’s chargeback rules seem reasonable, one of the roadblocks to an updated and more secure system is the fact that each card network has its own set of chargeback rules. All the systems work in a similar fashion, but the specific requirements of each are different enough to create confusion in an already overly-complicated process. If banks, networks, and processors could agree on a plan for standardization, everyone would benefit.
Until that happens, however, Visa’s chargeback policies remain in place—as do the separate policies for other networks. If you’d like help interpreting and implementing these complex policies, let us know. Chargebacks911 offers both end-to-end accountability and on-demand services; whatever your needs, we can help.