What VCR Really Means for Merchants

Visa Claims Resolution (VCR) is the biggest dispute policy update the payments industry has experienced in decades. Every stakeholder has been impacted, with requirements changing for cardholders, issuers, acquirers, and merchants. An unintended challenge of VCR is ensuring each stakeholder has the information and insight they need to comply with–and benefit from–the new policies and procedures.

Plenty of blog articles explain the technical nuances of Visa Claims Resolution. For example, this resource outlines the policy details very well.  But what pieces of information do you as a merchant need to know about VCR? What insight will help ensure you are receiving the full benefits Visa has intended with these changes?

Let’s break down the massive subject of VCR to just the things that are meaningful to you as a merchant.

You should use AVS and CVV2

VCR incorporates two dispute-resolution workflows. Collaboration is very similar to the legacy chargeback representment process. The new “allocation” workflow is quite different.

With allocation, Visa will assess dispute liability to either the issuer or the merchant. Just a couple pieces of data will be considered during the liability assessment process: AVS, CVV2, and Verified by Visa outcomes. If you don’t use these tools, you won’t have outcomes for Visa to consider, and you may be held liable for allocation disputes.

There are two helpful things to note here though:

• You can turn AVS and CVV2 on, but still avoid  automatically declining transactions based on match results. You can use these tools to monitor for full or partial mismatches and decline or approve transactions as you see fit. This way, AVS and CVV2 data is available when Visa assigns liability, but you won’t increase the risk of false declines.
• 3D Secure 2.0, also known as Verified by Visa, is a different product than what was first released several years ago. There is a lot less friction. If you were initially turned off by Verified by Visa, it might be time to look into it again.

Response time limits are shorter than you think

A key component of the VCR framework is shortened time limits for dispute responses. A lot of industry talk has focused on the fact that Visa has shortened the response time from 45 days to 30. But the 30-day time limit is for acquirers, not merchants.

Processors need time to review and submit dispute responses. Each processor has predetermined how long it will take to complete the review and submission processes. The case might be that if the merchant hasn’t responded by day 14, for example, the processor won’t be able to comply with Visa’s deadline. While Visa might allot 30 days for dispute responses, processors will likely offer much less to merchants. In fact, we recently received notice from a processor that their merchants will have just three days to respond!

You’ll want to clarify the dispute response timeline with your processor(s) so you know exactly what is expected of you. You’ll also want to take some time to get your transaction data organized. You basically have two options: create a finely-tuned in-house system for storing and accessing applicable compelling evidence so you can quickly and easily create dispute responses, or you’ll want to work with a service provider who can respond on your behalf.

VCR requires you to respond to disputes

Previously, a lot of merchants simply accepted chargebacks as a loss. They didn’t perceive value in challenging disputes and attempting to recover revenue. Now, merchants must respond to each dispute–even if the response is simply to accept liability.

This requirement could be a challenge, considering the newly shortened time limits. Again, take some time now to devise a dispute response strategy, whether in-house or using an external service provider.

You’ll likely pay more fees

Visa is committed to quickly and efficiently resolving disputes. That means any stakeholder who impedes that process will be penalized, but those who support the initiative will be rewarded.

These penalties and rewards are expressed in fees. The quicker an acquirer is able to respond to a dispute, the less fees that will be assessed. The longer it takes, the more the acquirer will be charged.

Fee Assessment Tiers

Resolution within 20 days

Resolution within 21-25 days

Resolution within 26-30 days

In order to avoid additional fees, many acquirers are setting an “auto accept” date. If they have not received a response from the merchant by the predetermined deadline, the acquirer will accept the dispute. This means the merchant will be denied the option to challenge the dispute and revenue recovery opportunities will be forfeited.

If acquirers do end up submitting a time-consuming response and are assessed penalizing fees, they are unlikely to accept full responsibility for those costs. Some or all of the cost will likely be passed along to the merchant. Therefore, it is advantageous to respond to disputes as quickly as possible. Otherwise, chargeback management will cost more than it already does.

VMPI integration takes work

Visa Merchant Purchase Inquiry (VMPI) is a dispute-resolution tool that allows merchants and issuers to share data in real time.

There are distinct advantages for merchants who use VMPI–a soft-launch of the product in Hong Kong showed VMPI was able to resolve at least 14% of disputes. However, reaping those rewards will require a bit of effort.

There are two ways to integrate with the VMPI, and the process for each is quite different:

• Integrate directly with Visa: To integrate with Visa, you’ll need to complete a detailed questionnaire and submit it to Visa. There is also a testing process to ensure you are able to supply necessary information in two seconds or less. VMPI responses have 141 fields of data, and that data could be stored in your fraud detection platform, gateway, and/or CRM. You’ll have to connect all those platforms to participate.
• Integrate via a Visa facilitator: Visa recognizes that not all merchants have the technical know-how to integrate to VMPI, but believes all merchants should have the right to benefit from the platform. Therefore, the network has appointed facilitators to help. A Visa facilitator can integrate to VMPI on a merchant’s behalf. In this situation, all the merchant is required to provide is the merchant’s cardholder acceptance identification (CAID) and the acquirer’s bank identification number (BIN).

Most businesses manage their tech schedule very tightly and ancillary projects often get pushed to the side. If you don’t have the development bandwidth necessary to integrate directly, a Visa facilitator can help get you up and running quickly so you can still reap the benefits of this new program.

 You still need prevention alerts with VCR

Prevention alerts, offered by Verifi and Ethoca, allow merchants to refund transactions to resolve disputes. This dispute-prevention tool is popular with e-commerce merchants. However, some merchants are wondering if they can do away with prevention alerts and replace them with VMPI.

At this point, it is advantageous to use both prevention alerts and VMPI. There are two reasons why:

• Issuers aren’t required to participate in VMPI. While the majority may participate, there are no guarantees on if or how issuers will use the data. You’ll want a fallback option in these situations.
• Even if VMPI initially resolves the dispute, there is a chance the cardholder could have a change of heart. For example, Bob disputes a transaction as unauthorized. VMPI reveals it wasa valid purchase. Bob accepts the charge. But a few days later, Bob realizes that even though he authorized the purchase, it isn’t what he was originally promised. He disputes the transaction again with a different reason. In situations like this, when VMPI isn’t able to resolve the dispute, it’s beneficial to have a second line of defense with prevention alerts.

VMPI will provide a lot of valuable data

Analyzing chargeback and prevention alert data provides a lot of valuable insight. These analytics can help you determine why customers are disputing transactions so you can resolve previously hidden issues. They also help you determine things like which price points and product types are likely to cause the most disputes.

VMPI data will be just as insightful. However, you’ll need a system in place to capture and easily review this information. Without a data collection and analysis process, you’ll be flying blind!

Second dispute framework requires added expertise

For at least a while, VCR will double your workload. All transaction disputes that were initiated before April 15 will be processed with the legacy program. All transaction disputes initiated after April 15 will use VCR. So until the legacy process has been completely phased out, you’ll need to adhere to both sets of regulations.

But even after the legacy process has been fully retired, you will still deal with an inconsistency between Visa and the other card networks. Mastercard, Discover and American Express all have plans to likewise update their dispute-resolution frameworks, but those updates don’t coincide with VCR’s launch.

In some ways, Mastercard’s impending update will be even more challenging than the transition to VCR. Merchants will likely still be in a state of confusion, stress, and non-compliance at the time of Mastercard’s unveiling whenever it happens later this year.

Now is a good time to give the idea of professional chargeback help some serious thought. Not only will you be able to fully comply with VCR and experience benefits sooner, you’ll be able to transition seamlessly when the time comes for Mastercard, Discover, and American Express’s updates.

Simplify Processes to Benefit from VCR

Since its conception, the chargeback process has favored the cardholder over the merchant. VCR is an attempt to balance the equation and help merchants have a bigger say in the outcomes. Take advantage of this change. Don’t let the magnitude of the initiative overwhelm you.. Understand what the potential challenges are and embrace opportunities to simplify the complex and reduce your chargebacks.