In April 2018, Visa goes live with a new global dispute process called Visa Claims Resolution, or VCR. This new system aims to help reduce timelines and simplify the chargeback dispute process by shifting from the current litigation-based model to a liability assignment model.
While the new system is designed for overall simplification, it deviates from the existing process in key areas.
What is Visa Claims Resolution?
VCR is Visa's new global process for resolving chargebacks. In simple terms, the initiative brings five definitive changes designed to streamline and speed up the resolution process:
1. The timeframe for merchant response will be shortened from 45 days to 30 days.
2. Certain invalid chargebacks will be automatically rejected before processing.
3. All cases will be routed through one of two workflow tracks, depending on type.
4. The current 22 reason codes will be consolidated into four basic dispute categories.
5. Merchants will only be allowed to challenge fraud and authorization chargebacks if they have clear and definitive evidence (or "compelling evidence,” as it’s often called).
Does Any Terminology Change?
Yes. In fact, some very basic vocabulary associated with the dispute process will change under VCR, which could prove highly confusing during the transition period:
Current Defined Term/New Defined Term
Chargeback → Dispute
Representment → Dispute Response/Pre-Arbitration
Chargeback Reversal → Dispute Reversal
Representment Rev/Adjustment → Dispute Response Reversal
Why is Visa Implementing a New System?
Chargebacks are part of a decades-old process that hasn’t changed much since its inception in the mid-70s. While adequate for its time, the existing system is not flexible enough to handle the volume and complexity of the contemporary payments industry. VCR updates chargeback processing for the eCommerce age by applying automated tools to try and improve resolution speed and filter fraudulent chargebacks out of the process.
When Do the New Regulations Take Effect?
VCR is planned to roll-out globally on April 13, 2018. The introduction of VCR was a long process; discussion of the technology goes back to at least 2015, with the system originally meant to go live in October 2017. VCR was delayed in most markets.
Who Will Be Impacted?
VCR adoption is mandatory for all merchants, issuers and acquirers worldwide who handle Visa transactions. That includes both card-present and card-not-present exchanges.
This affects customers as well. The VROL system might automatically reject a customer dispute if it doesn't meet certain criteria.
How Will This Affect the Use of Visa Resolve Online (VROL)?
Under the new initiative, VROL will play an even larger role than before:
· An issuer must request a Transaction Inquiry through VROL before initiating a dispute.
· Financial messages to issuers and acquirers will be available through VROL.
· Issuers and acquirers will have the option of initiating financial messages via VROL while using existing systems for fraud report submissions.
In simple terms: while VROL was previously just one avenue to facilitate disputes under the old system, VCR makes it the central means of communication between parties in the dispute process.
Will VCR Speed-Up Dispute Resolution?
Yes. According to Visa, the resolution timeline for disputes will be significantly reduced.
It currently takes an average of 46 days to resolve a chargeback, but depending on the complexity of the case, some resolutions can take over three months. This is because existing statutes give banks up to 45 days to respond to a Visa dispute.
Once enacted, VCR regulations will reduce that timeframe to 30 days. This will bring faster resolutions by default, of course, but when combined with other changes, Visa expects all cases to be resolved in less than 31 days.
What is a “Litigation-Based” Dispute?
The current chargeback process is litigation-based; this means the dispute system functions much like a courtroom trial:
1. One party (the cardholder) accuses another party (the merchant) or wrongdoing.
2. The accused party can accept the chargeback, effectively pleading "guilty,” or dispute the chargeback through representment.
3. Both sides present evidence, with the cardholder’s issuing bank serving as the judge and jury.
4. The bank issues a ruling, either upholding the chargeback in favor of their customer, or overturning it for the merchant.
5. If the chargeback is upheld, the merchant can appeal that decision to the card scheme, much like appealing to a higher court.
6. The dispute goes through an arbitration process, and the card scheme makes a final ruling.
Is VCR a Litigation-Based System?
No. Rather than a litigation-based system, Visa describes VCR as “liability-based.”
One of the core components of the VCR initiative is a model that automatically assigns liability in as many cases as possible. Only the more complex cases that require human oversight to resolve accurately will go through the litigation-based dispute process.
Visa hopes this will dramatically reduce the tedious back-and-forth movement of the current process, speeding up the average dispute time and automating as much of the process as reasonably possible.
How Will VCR Proactively Eliminate Invalid Disputes?
Merchants should already be familiar with Visa Resolve Online (VROL). Certain business information is already stored in the system, and merchants will add more data through a mandatory new Dispute Questionnaire.
Visa plans to assess each chargeback before it is actually filed, comparing the case against the merchant's terms for a valid return. Cases that do not meet the initial criteria will be automatically blocked.
Why Would a Dispute be Blocked?
There are two primary reasons a case would be automatically rejected under the Visa Claims Resolution guidelines:
1. Customer filing after the allowable post-purchase timeframe had elapsed.
2. Customer filing after a merchant return has been issued.
As long as it's noted in the VROL system that a return was initiated, it should block any attempted chargeback on that transaction. That's great news...but it's still not perfect. After all, VROL wouldn't auto-reject a deliberate case of chargeback fraud.
What's Happening with Reason Codes?
To simplify the complex current system, the VCR initiative will consolidate the 22 existing chargeback reason codes into four fundamental dispute categories, as shown in this chart:
10.1 – EMV Liability Shift Counterfeit Fraud
10.2 – EMV Liability Shift Non Counterfeit Fraud
10.3 – Other Fraud-Card Present Environment
10.4 – Other Fraud-Card Absent Environment
10.5 – Visa Fraud Monitoring Program
12.1 – Late Presentment
12.2 – Incorrect Transaction Code
12.3 – Incorrect Currency
12.4 – Incorrect Account Number
12.5 – Incorrect Amount
12.6.1 – Duplicate Processing
12.6.2 – Paid by Other Means
12.7 – Invalid Data
13. Consumer Disputes
13.1 – Merchandise/Services Not Received
13.2 – Cancelled Recurring
13.3 – Not as Described or Defective Merchandise/ Services
13.4 – Counterfeit Merchandise
13.5 – Misrepresentation
13.6 – Credit Not Processed
13.7 – Cancelled Merchandise/Services
13.8 – Original Credit Transaction Not Accepted
13.9 – Non-Receipt of Cash or Load Transaction Value
**Visa chargeback reason code 75 ("Unrecognized Transaction") will no long be available.**
How Does the Dispute Category Assignment Affect Resolution?
VROL operates by separating cases based on their dispute category and routing them through one of two workflow tracks. Every case processed through VROL will either be resolved via Allocation or Collaboration.
This represents one of VCR’s most radical departures from the preexisting chargeback resolution model. With traditional chargeback disputes, the issuer would have to engage in manual review of each case and adjudicate it based on available evidence. VROL provides the framework to automate this process.
What is the Allocation Workflow?
This track will be used for disputes assigned to either the “Fraud” or “Authorization” dispute categories; Visa predicts most disputes will be assigned to this workflow.
Through the information in VROL, Visa will first run automated checks on the filed dispute, confirming that it falls within regulated timeframes and that no previous refund was issued. Flagged cases will be automatically blocked and will not become a chargeback, which should cut down on the overall number of cases. If any dispute gets past the initial checks, though, liability will automatically be assigned to the merchant.
What is the Collaboration Workflow?
This track is for cases tagged as “Customer Disputes” or as “Processing Errors,” and is like Visa's existing chargeback process.
Issuers will file Dispute Requests through VROL, and acquirers will need to respond through VROL in a timely manner. Most dispute reasons will require filling out a questionnaire; some will still need supporting documentation from issuers and/or acquirers.
How Do New Workflow Tracks Affect Merchants?
Before VCR, merchants could contest any fraud chargebacks, whether they possessed compelling evidence or not. But with the Allocation workflow in place, defending against the dispute will only be allowed if the merchant can provide definitive proof that the chargeback is illegitimate.
The new regulations mean that merchants will be limited in their ability to respond…making it more important than ever to file and maintain transaction evidence.
What is the Merchant Purchase Inquiry?
Visa's new Merchant Purchase Inquiry is a plug-in for the VROL platform. It allows merchants to either input transaction documentation (purchase information, digital receipt, and/or other order details) or simply issue a customer credit.
The Merchant Purchase Inquiry is a massive change, as it effectively allows the merchant to bypass the dispute altogether when applicable. However, more complicated cases may still need manual processing and representment, especially when they cannot be resolved by the merchant and issuer. This requires arbitration by Visa to resolve, which can be a complicated, time-consuming, and expensive process.
What Are the Benefits of VCR?
Simply put, all parties should benefit from decreased processing time and expenses. With VCR, merchants can expect:· Shorter timeframes for dispute resolutions, meaning less time spent with resources in limbo.
· A simplified dispute process due to fewer and clearer reason codes.
· Automated blocking of invalid disputes before processing.
· Greater accuracy through prepopulated transaction data.
· Better use of operations staff and resources.
· Easier and more consistent communication via VROL.