Visa and Mastercard have streamlined their disputes processes. We look at how these changes will affect merchant businesses in 2020.
Widespread use of digital transactions and a growing dependence on credit cards means major card brands are recognizing a need for streamlined dispute processes.
According to a recent issue of The Nilson Report, payment cards with global brands are predicted to generate over 850 billion purchase transactions by 2028. Purchase transactions in the US alone reached 104 billion in 2018 and are expected to rise to 173 billion by 2028. In a recent interview, PaymentsJournal found that credit card transactions for 2020 are projected to be nearly 67 billion with a combined dollar volume of $4.7 trillion.
As the number and dollar amount of transactions increases, so do disputes and merchant concerns surrounding chargebacks and fraud. Card brand giants Visa and Mastercard have been working to streamline dispute processing for merchants and customers alike.
Visa and Mastercard’s most recent updates to 2018 and 2019 dispute-resolution initiatives are focused on creating a more efficient, transparent customer experience and reducing overall chargebacks.
In April 2018, Visa launched the Visa Claims Resolution (VCR) initiative, to “improve the efficiency of handling disputes.” Visa VCR speeds up dispute processing and works to eliminate suspect claims before they become chargebacks.
The initiative’s processing rules began by separating disputes into two major categories, Allocation and Collaboration. Allocation claims cover issues around fraud and authorization while all other claims, such as processing or merchant errors, fall under Collaboration. Visa’s goal has been to simplify dispute processes in both categories, resolving most Allocation claims on its own within a 48-hour window and reducing the number of Collaboration claims that required acquiring and issuing bank and merchant input.2020 Updates for Visa
As of October 2019, Visa has lowered fraud and dispute thresholds for the Visa Fraud Monitoring Program (VFMP) and the Visa Chargeback Monitoring Program (VCMP). The VFMP monitors the levels of potentially fraudulent transactions in US accounts while the VCMP focuses on the number of chargebacks.
Prior to October 2019, Visa’s monthly thresholds for merchants under the VFMP standard programs were:
VCMP low-risk program monthly thresholds included:
Now, the fraud-dollar-to-sales-dollar ratio for merchants in both VFMP standard and VCMP low-risk programs has been reduced by 0.1% to 0.9% monthly.
Mastercard’s multi-faceted initiative, known as the Mastercard Dispute Resolution Initiative (MDRI), launched in October 2018 and is now on its third active phase.MDRI 2018 and 2019
Phase 1 of Mastercard’s MDRI worked to minimize incomplete chargebacks by requiring issuing banks to request more information for any dispute listed under the following reason codes:
The second phase, which went into effect April 2019, targets potential “unjust enrichment” or the practice of double chargebacks through merchant credit and issuing banks. Mastercard also reduced chargeback filing time frames for point-of-interaction errors (reason code 4384) from 120 to 90 days and eliminated reason code #4840 (Fraudulent Transaction Processed).2020 Updates for Mastercard
As of April 2020, the next updates to the MDRI will consolidate their chargeback process even further by removing arbitration or “second chargebacks” and implementing a mandated pre-arbitration process for reason codes:
Both the VCR initiative and the MDRI have been designed to solve the ever-present problem of dispute-resolution and overcome the unique challenges of digital payments. But the effect of either or both of these initiatives has yet to be fully determined.
A Chargeback Gurus survey in 2019 found that 78% of merchants saw a reduction in chargeback claims under the VCR program. However, the majority of respondents (54%) said that new mandates have made no impact on their businesses, while 31% said they had a negative effect.
In 2020, it may become increasingly difficult for Visa merchants to avoid reaching chargeback and fraud risk thresholds. For Mastercard, businesses will see an increasing crackdown on very specific reason codes and processes that could require a bigger investment of time and resources to remain compliant with.
It’s crucial that merchants stay aware of due dates and initiative phase launches, determine how these updated processes could affect their businesses, and develop a strategic plan of action.