Electronic Retailer - April 2011 - 42

GUEST VIEWPOINT

BY KEN MUSANTE

New Rules Will Increase Visa Chargebacks

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In September of 2010, Visa announced that effective April 16, fraud-related chargeback reason codes will no longer require a consumer signature disputing the transaction. Instead, going forward, issuers may choose to accept verbal or email responses from cardholders in order to initiate transactions. Though this change will lessen the time frame between the transaction and the chargeback, this will surely also increase chargeback ratios because it will be easier for consumers to initiate chargebacks. Visa is implementing these changes in order to shorten and simplify (for the cardholder) the dispute resolution process. Certainly not requiring a signature does simplify the process from the cardholder’s perspective. The specific chargeback reason codes that are impacted by this change include the following:
Fraudulent Multiple Transactions: Counterfeit Transactions: Fraud – Card-Present Environment: Fraud – Card-Absent Environment: Reason Code 57 Reason Code 62 Reason Code 82 Reason Code 83

For any direct marketing and continuity merchant, fraudulent chargebacks are amongst the most common types of chargebacks. With this change, the issuing bank must provide a statement, “the cardholder neither authorized nor participated in the transaction” to the acquiring (or merchant) bank through Visa’s chargeback resolution system. Though this statement implies that a similar attestation was made by the cardholder directly, this change will decrease the hurdle for the cardholder and increase the total number of Visa chargebacks. As any direct marketing and continuity merchant knows, chargebacks are costly and excessive chargebacks endanger the longevity of your merchant account. Issuers are also required to answer the following questions on the Visa chargeback resolution system: • Was the card lost or stolen? • Is the cardholder in possession of the card? • Have all other conditions of the chargeback been met, such as reporting the transaction as fraud through the Visa system and listing the account number on the electronic warning bulletin? (All too often in today’s environment, we find examples where the above requirement is not followed by the issuing bank.)

Fortunately, Visa is also implementing a monitoring program to assess whether chargeback conditions were met including monitoring: • If accounts are being properly placed on the exception file and replacing the card itself. • Identifying accounts where transactions are approved subsequent to the fraudulent chargeback (as transactions should no longer be authorized once the fraud is reported). If an issuer processes an excessive number of chargebacks that do not meet the required conditions, then the issuer will be placed into a dispute monitoring program and Visa may assess non-compliant fees to the issuer. This may lessen any abuse of these changes by cardholders and issuing banks. Currently, procedures require a signature from the cardholder stating the transaction is fraudulent before an issuer may initiate a chargeback for ‘fraud’. Though this may be done on a form letter created by the issuer and signed by the cardholder – who may not even read what they are signing – at least it requires a definitive affirmation and action by the cardholder. Given the common language barrier with staff at an issuing bank’s call center, the call may start as an innocent inquiry where the cardholder is simply asking about the transaction. It is not difficult to imagine how this could easily morph into one where the issuing bank is selling the cardholder on a dispute initiation process and the cardholder simply agrees in order to move the conversation along. Visa is not mandating that issuers eliminate signed documentation, but large issuers may embrace this change to eliminate the labor-intensive step in the chargeback-resolution process. This eliminates the wait time for paper to get mailed or faxed back. Merchants, too, could benefit by reducing the time frame between an initial dispute and notification to the merchant to dissuade any future sales to that same cardholder. MasterCard Inc., and Discover Financial Service still require paper documentation in fraud disputes, so perhaps these changes will be implemented more slowly, however, as with any change of this magnitude, be prepared. Ken Musante is President of Direct Response Payments. Reach him at (707) 476-0573 or email kenm@directresponsepayments.com.

electronicRETAILER | April 2011

Electronic Retailer - April 2011

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