For merchants and card issuers, disputes – also called chargebacks – and fraud are unavoidable. Mohamed Dabo reports on two Visa programmes designed to keep levels of discord and fraudulent activity at acceptable levels as Covid drives card transactions
When merchants experience especially high levels of disputes or fraud, as is increasingly the case during the coronavirus pandemic, card networks will intervene to place those merchants on programmes designed to bring their disputes and fraud rates back to acceptable levels.
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Visa has two such programmes: the Visa Dispute Monitoring Programme (VDMP) and the Visa Fraud Monitoring Programme (VFMP). While it is best to not have to be enrolled in these programmes in the first place, they can help merchants put beneficial procedures and tools in place that will protect their revenue and keep them in Visa’s good graces.
How VDMP works
VDMP is Visa’s way of monitoring merchants that receive excessive amounts of fraud or disputes, but this is not a programme into which merchants want to be enrolled.
A dispute, or chargeback, occurs when a cardholder questions a payment with their card issuer. Visa monitors all merchant dispute activity, and if any merchant has excessive disputes over a monthly period, Visa will notify the acquirer. An acquirer is a bank or financial institution that processes credit or debit card payments on behalf of a merchant. Once notified, acquirers are expected to reduce merchants’ disputes.
Visa says: “Merchants should work with their acquirer to develop a detailed disputereduction plan which identifies the root cause of the dispute issue and an appropriate remediation action.”
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By GlobalDataThese remediation actions will depend on the dispute condition, the merchant’s line of business, business practices, fraud controls, and operating environment, sales volume, geographic location, and other factors.
The acquirer is required to fill out a VDMP/VFMP Remediation Plan with the merchant. This plan aims to help merchants improve their chargeback or fraud mitigation efforts with the goal off moving the merchant out of the risk-compliance programme.
The plan starts a current fraud solution and root-cause evaluation. Visa then provides a list of available fraud deterrents, and asks whether the merchant is currently using any of them.
The next step is to list the corrective actions the merchant will take to in order to reduce fraud and disputes. Visa does not give a list, but simply a fill-in-the-blank response. This is where merchants need to show their true game plan to reduce disputes.
Visa gives the following as general recommendations for dispute monitoring:
- Track disputes and dispute responses by conditions. Each condition is associated with unique business issues and requires specific remedy and reduction strategies;
- Track dispute activity as a proportion of sales activity;
- Include initial dispute amounts and net disputes after dispute response;
- Track card-present and card-absent disputes separately.
If a business combines traditional retail with card-absent transactions, track the card-present and card-absent disputes separately.
Similarly, if a business combines mail or telephone order and internet sales, these disputes should also be monitored separately.
How VFMP works
Visa monitors merchant outlets that generate excessive levels of fraud through VFMP. Visa will then identify a merchant outlet under the VFMP standard programne if it meets or exceeds certain program thresholds.
When a merchant meets any of Visa’s predetermined criteria, the acquirer is notified and given 10 days to notify the merchant. From there, a merchant and their acquiring bank will have approximately one month to research the source of the fraud and submit a fraud-remediation plan to Visa.
Visa may require acquirer or its merchant to deploy appropriate fraud-remediation tools or technologies to address unusual activity in the individual cases identified through the VFMP. The merchant outlet will exit the VFMP if it is below the programme thresholds for three consecutive months.
VFMP is not something in which merchants can be enrolled indefinitely, and there is a strict limit to how much time merchants are allotted.
In the end, credit card dispute fraud is a combination of several different problems that share a single name. It can come from otherwise good customers with bad habits that can be broken, customers who are genuinely confused and need better communication from the merchant at some point in the process, and actual malicious fraudsters.
