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Comprehensive Chargeback Management Guide - Part 6

Part 6: Visa Claims Resolution

The first 5 posts outlined everything your organization needs to know about chargebacks and how to prevent them, but what happens when your organization gets one anyway?  The chargeback dispute process, called “Claims Resolution” by Visa and “Chargeback Re-Presentment” by the other big networks can be a long and arduous process that often ends in higher fees and a judgement in favor of the customer.  If you know the system, how to properly respond to chargebacks, and most importantly when to cut your losses, you can successfully mitigate their impact on your bottom line.  

 In an effort to increase automation and effectiveness, and decrease the time it takes to process a chargeback and the amount of fraudulent chargebacks, Visa recently overhauled their entire chargeback process. This post will outline how Visa Claims Resolution (VCR) works, and how your organization can effectively use it to reduce your chargeback costs.

Reason Codes

As you learned in Post 1, all chargebacks are classified by reason code.  Visa has twenty-five reason codes that are split into four categories.  The category the reason code is in determines how the dispute process is handled for a specific transaction.  These categories are:

  • Fraud
  • Authorization
  • Processing Errors
  • Consumer Disputes

Details on the individual reason codes will not be discussed here, but they can be found in Visa’s Dispute Management Guidelines for Merchants.

One notable change is the removal of reason code 75 ‘Transaction not Recognized.’  This code had been used as a catchall for unrecognized transactions, which allowed a customer to dispute a charge they did not recognize, without requiring them to designate it as fraudulent.  Now, customers must either take the time to investigate the source of a transaction, or go through the fraud protocol that involves cancellation and re-issuance of the card in question.  There are mixed opinions on the impact this change will have on the amount of friendly fraud.

Pre-Dispute Process

The first stage of VCR is what is called the Pre-Dispute Phase.  Participation requires the Visa Merchant Purchase Inquiry plugin for Visa Resolve Online (VROL).  VROL is Visa’s online chargeback response management platform.  This is where merchants go in order to review, accept, or respond to Visa chargebacks.  The Visa Merchant Purchase Inquiry plugin allows Visa’s automated systems to collect individual transaction information manually or automatically, which can be used by issuers to help cardholders identify transactions.  Utilizing this system creates a system-to-system interface between the issuer and the merchant at the beginning of the dispute process.  This can help eliminate potential disputes, as the issuer can help the cardholder identify a transaction that they may have forgotten about or that has a confusing description on their statement.  

If the information collected by the system is not sufficient for the cardholder to identify the transaction as legitimate, VROL will request a response from the merchant.  The possible response options are:

Respond with Additional Data

The merchant can provide additional transaction-specific data, and/or a description of goods/services.  Note:  This is not an official chargeback yet, and the merchant is not being asked to prove liability for the transaction.  This is still preliminary information to help the issuer and cardholder decide if a chargeback should be issued.  It is important to know that responding with additional data does not guarantee the cardholder will drop their dispute.

Respond with Customer Credit

If the merchant wishes to avoid receiving and disputing a chargeback, they can respond with a credit to the cardholder.  This avoids the transaction entering the chargeback process altogether, which allows the merchant to avoid chargeback and re-presentment fees.

Respond with Customer Credit and Additional Data

This response allows you to issue the refund and avoid the chargeback, but will also notify the cardholder that you collect transaction information, so they may not attempt this numerous times.  This may just seem like a passive-aggressive response, but it does serve a purpose.  Because customers will often abuse lenient refund/chargeback policies by merchants, responding with detailed information about the transaction and services offered lets the cardholder know that you are a proactive business.

The Dispute Process

Visa has also modified the dispute process.  Instead of one process for all chargebacks, Visa has split the dispute process into 2 workflows.  One that encompasses fraud and authorization disputes, and another for consumer and processing errors.

Allocation Workflow

The Allocation Workflow deals with fraud and authorization related disputes.  Since most chargebacks will fall under this category, Visa has made the most significant changes to this workflow.  This workflow has introduced automation into the decision making, as well as eliminating a step and decreasing response times of the remaining steps.  The process is as follows:

  1. Visa’s automated system makes a decision based on the information in VROL and responses of the involved parties, then assigns liability accordingly.
  2. If the system validates the chargeback and places liability on the merchant, the merchant must accept the chargeback, or enter pre-arbitration. Pre-arbitration provides the merchant and the issuer the opportunity to come to a decision on their own, without involving individuals at Visa.
  3. Pre-arbitration requires the merchant to submit compelling evidence to the issuer within 30 days as to why the chargeback is invalid. More information on compelling evidence will be provided in Part 7 on responding to chargebacks.
  4. The issuer will then have 30 days to decide whether the chargeback was valid, or accept the merchant’s dispute and re-present payment.

If the issuer rejects the merchant’s pre-arbitration evidence, the merchant can take the dispute to arbitration with Visa.  In this step, Visa will review all the previous evidence and respond with a final ruling within 10 days.  Taking a dispute to arbitration and losing will result in a significantly increased chargeback fee for the merchant.   

Collaboration Workflow

The collaboration workflow is for consumer and processing error-related disputes.  Since chargebacks in these categories require back-and-forth to assign liability, the process has largely been kept the same.  The steps are outlined below:

  1. After filling out the improved and expanded Dispute Questionnaire, the issuer will send the chargeback to the merchant.
  2. The merchant either accepts the chargeback or provides a dispute response, challenging the chargeback within 30 days.
  3. If the merchant does not accept the chargeback, the pre-arbitration process will be started. First, the issuer will have 30 days to provide compelling evidence as to why the chargeback is valid.
  4. The merchant has 30 days to respond with their own compelling evidence to the issuer as to why the transaction was legitimate and the chargeback is invalid.
  5. If agreement still has not been reached, the issuer can send the dispute to Visa for arbitration.
  6. Within 10 days, Visa will issue a final ruling.

More information regarding the Pre-Dispute and Dispute Processes can be found in Visa’s Visa Claims Resolution: Efficient Dispute Processing for Merchants.

Only time will tell if Visa Claims Resolution will streamline the chargeback process or just cause bigger headaches for merchants.  What do you think?  Provide your opinion on VCR and the affects you think it may have on merchants in the comments below.  Also, don’t miss the final post in this series regarding compelling effectively responding to chargebacks.