Visa Chargeback Thresholds Have Changed: How Do I Know if I’m Compliant?
Visa chargeback thresholds are the formal chargeback limits placed on merchants by the card network. Visa maintains its own predetermined monthly limit for the number of customer disputes it considers acceptable and breaching the Visa chargeback threshold or fraud threshold can have serious consequences. Noncompliance may mean you see costly fees, time-consuming red tape, and threats to future business.
Your Visa chargeback rate is an essential key performance indicator (KPIs) for other reasons, too. How closely you track this figure can play a role in the effectiveness of your overall chargeback management strategy.
In this post, we’ll explain what the Visa chargeback thresholds are. We’ll also explore what can happen if you exceed the limit, and offer steps you can take to prevent disputes on Visa transactions.
What Are Fraud & Dispute Ratios?
Before we dive in, let’s take a moment to clarify some terminology.
To begin with, you need to understand that Visa has made the decision back in 2018 to begin referring to all chargebacks as “customer disputes,” or simply “disputes” in their official literature. However, research shows that most merchants and financial institutions continue to use the term “chargeback.” In this post, we use the terms interchangeably.
Also, to understand how Visa chargeback thresholds impact your business, you must first know about chargeback ratios (also called your “chargeback-to-transaction ratios,” or “chargeback rates”), and fraud ratios (or “fraud rates”). These are two separate figures; your chargeback ratio measures the number of total transactions resulting in chargebacks. In contrast, your fraud ratio looks at the total dollar value of your transactions lost to fraud during the specified month. Since this post is primarily about the Visa dispute threshold, we’ll concentrate on that.
To calculate your Visa chargeback rate, the card network simply takes the number of chargebacks in a single month, then divides that figure by the total number of transactions in the same month:
That was all there was to it at one point. With the implementation of Visa Claims Resolution in 2019, however, understanding Visa’s chargeback standards became a bit more challenging.
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What is the Visa Chargeback Threshold?
For years, Visa used to allow a chargeback rate of up to 1% of transaction. With recent rule changes, however, the company revised their standards, establishing thresholds for standard, “early warning,” and “excessive” tiers. The standards for each tier are based on two criteria: your chargeback ratio, and the total number of chargebacks you received.
|Old Monthly Threshold||New Monthly Threshold|
|VDMP Early Warning||0.75% chargeback ratio and 75 chargebacks||0.65% chargeback ratio and 75 chargebacks|
|VDMP Standard||1% chargeback ratio and 100 chargebacks||0.9% chargeback ratio and 100 chargebacks|
|VDMP Excessive||2% chargeback ratio and 500 chargebacks||1.8% chargeback ratio and 1,000 chargebacks|
Visa requires banks to closely monitor chargeback activity and flag merchants who breach these thresholds. If you violate one of the thresholds above, you could be entered into the corresponding tier in the Visa Dispute Monitoring Program (VDMP).
The goal here is for Visa to protect themselves and mitigate risk, but also to ensure that your sales tactics are ethical and your methods and technology are compliant with card network protocols.
Consequences of Violating Visa Thresholds
As you would expect, the consequences for violating thresholds vary depending on the level. Breaching the “early warning” threshold may not result in any immediate consequences. As the name implies, the “early warning” designation is meant to alert you that you’re getting too close to the edge. As such, there are no fines involved or penalties associated.
Going over the standard threshold is more serious. You’ll be given a four-month grace period in which to get your chargeback ratio under control; if you fail to do so, Visa will begin assessing a $50 per-chargeback fine with each new dispute. If you can’t bring your chargeback rate back under the standard Visa chargeback threshold within a year, you may have your card processing privileges revoked.
Crossing the threshold for the “excessive” tier has the harshest penalties. There is no grace period; fines start immediately, and continue until you are removed from the program, or your account is canceled by Visa.
Exiting any level of VDMP requires three consecutive months with a chargeback rate below the standard threshold. Remember that each chargeback counts toward your total, even if the chargeback was invalid (as in a case of friendly fraud) and you manage to reverse the chargeback through the representment process.
What Does This Mean for Me?
The bottom line: fraud and chargebacks are not going away…but your margin of error is getting smaller than ever.
It’s easier to breach the established Visa dispute threshold and end up in the VDMP. This will quickly inflate your costs, and may destroy your business entirely if left unchecked.
Unfortunately, staying under Visa’s threshold may not be enough. Excessive chargebacks aren’t your problem alone; your acquirer has a vested interest in seeing that you remain in compliance, too.
When customers or their issuing banks file disputes, Visa first overturns the transaction from your acquirer. In turn, your acquirer then withdraws the money from your account to cover their loss. However, if your chargeback issuances spike, or your liabilities outstrip the amount of cash you have available on hand, the acquirer would be held liable to cover the outstanding chargeback costs. To protect their interests, most acquirers will preemptively cut you off if there’s a chance that this might happen.
Acquirers understand that some chargebacks are unavoidable. That said, standard acquirers and processors don’t want to do business with merchants who receive excessive chargebacks. This means that acquiring banks often have their own, stricter chargeback thresholds. If your chargeback issuances start creeping toward that Visa threshold, the bank may freeze your assets or cancel your account entirely to protect their own interests.
Of course, if your merchant account is frozen or canceled, you’ll be unable to process card payments. You’ll also be unable to accept new transactions or withdraw funds. You’d essentially be “dead in the water.” This is why it’s more important than ever that you take steps to minimize your risk exposure and try to prevent as many attacks as possible.
Take Steps Against Chargebacks & Fraud
Customer disputes are on the rise, while the Visa chargeback threshold is getting lower. So, what can you do to protect your business long-term?
Maintaining a chargeback rate below the Visa dispute threshold requires a comprehensive strategy that prevents as many chargebacks as possible, while still addressing illegitimate disputes directly at their sources. To learn how that works, download our free paper on understanding reason codes.
Have additional questions about protecting your business? The experts at Chargebacks911 are here to help. Chargebacks911 offers the industry’s only fully managed approach to chargebacks, deploying machine learning and human forensic expertise to help you stop chargebacks and protect your revenue. Contact us today and learn how much you stand to save.
What Is an Acceptable Visa Chargeback Rate?
Visa has three tiers for their chargeback rates, starting with a monthly chargeback rate higher than .065% and who has more than 75 chargebacks per month. The criteria—and the consequences—go up from there. Keep in mind, however, that your acquirer may choose to impose more stringent standards.
What Does Chargeback “Over Threshold” Mean?
This means your monthly chargeback (dispute) rate is higher than Visa considers acceptable for a typical merchant. This may result in you being entered into the Visa Dispute Merchant Program.
What Is a Chargeback Ratio?
A chargeback ratio (also called a chargeback rate) represents the ratio of chargebacks filed against your business to overall transactions for the time period in question. You will have a different chargeback ratio for each card brand (Mastercard, Visa, etc.).
How is a Chargeback Ratio Calculated?
To calculate your chargeback rate, Visa simply takes the number of chargebacks in a single month, then divides that figure by the total number of transactions in the same month.
Is My Mastercard Chargeback Ratio Different From My Visa Chargeback Ratio?
Yes. You will have a different chargeback ratio for each card brand. Each network has their own chargeback rules and requirements. Also, the Mastercard chargeback threshold is different from the Visa chargeback threshold.