Visa is letting merchants know: clean house by Oct 1st, or else.
Visa and MasterCard both set thresholds for the amount of chargebacks and fraudulent incidences they will allow a business to have, before action must be taken. Now they are tightening the noose so to speak on just how much they will allow merchants to get away with. New, lower thresholds will go into effect this fall for both the Visa Chargeback Monitoring Program and the Visa Fraud Monitoring Program. These programs sound like something that will help merchants when in fact they are more like a form of punishment. Once a business hits or goes over that threshold they are put in one of these programs until they can prove they can do better. A merchant can think of being entered into one of these programs as a bit like being put on probation.
Visa will be lowering the allowable thresholds for both their chargeback monitoring and fraud monitoring programs in an effort to press merchants to take a more proactive approach and begin to take advantage of the programs available to them for managing fraud and friendly fraud type chargebacks.
Currently, the dispute to transactions ratio is 1% for lower risk merchants and 2% for higher risk merchants. Come Oct 1st however, those ratios will be lowered to 0.9% and 1.8% respectively. Any ratios above these limits will land the merchant in Visa’s Chargeback Monitoring Program until further notice.
Similarly the card brand will also be lowering the percentage of fraud currently allowed per monthly sales volume from 1% to 0.9% for lower risk merchants and to 1.8%, down form 2%, for merchants who carry excessive risk.
These new limitations will have a significant impact on businesses that historically haven’t paid too much attention to their chargeback ratios and tend to just chalk them up to the cost of doing business, possibly even landing them smack into one of these monitoring programs, where they will remain until they clean up their act. But it will also have a great impact on already high risk merchants who are inherently plagued with a high incidence of fraud and chargebacks simply due to the type of business they operate within. Typically, businesses who operate in a card-not-present situation (eCommerce) and businesses considered to be a high risk category such as online gambling, dating sites, MLM, adult oriented sites and even international merchants that are U.S. based tend to already have a difficult time keeping their ratios under the current thresholds. These new limits are going to make managing their numbers a bit more difficult.
Lower Visa charge-back ratios will create challenges for MSPs and acquiring banks too.
These lower thresholds are not only affecting merchants, acquiring banks will find their own limits being decreased as Visa attempts to spread the risk out a bit more evenly. Each acquiring bank that issues accounts to merchants for accepting credit card payments will also have their own fraud to sales and dispute to transaction ratios that they are expected to abide by. Visa will a be decreasing these ratios from 1% to 0.75% in October as well, and could penalize any bank who is unsuccessful in managing disputes. Because acquiring banks are held liable by Visa if their portfolios contain too high a number of merchants who have excessive fraud and/or disputes abiding by these lower limits may result in acquirers being much more fastidious when deciding whether to take on a business.
Since acquiring banks will have to meet even stricter guidelines than ever before it will alternately be even harder for those high risk companies to find a merchant account. It will be more important than ever for businesses of all types to anticipate problems, implement fraud software and enroll in chargeback mitigation programs.
Lower tolerance for fraud and chargebacks benefits card issuers.
Processing chargebacks come with significant costs- not just the chargeback amount itself, but considerable costs associated with researching and investigating the source of the problem.
The majority of chargebacks, unfortunately, are what is considered friendly fraud, which also means that they are largely preventable. There has been a significant rise in friendly fraud cases over the last couple of years, some estimates show as much as 41% increase. Many merchants don’t always understand the rules set by the card brands around chargeback procedures. There are specific deadlines for responding, for instance, that can carry with them fines assessed against the merchant if those deadlines aren’t met. Many merchants are simply unaware of these rules. This lack of preparation and education costs merchants and the card issuers money. Now they are finding ways to help crack down on the abuse.
MC, for instance, recently downgraded merchants who offer free trials followed by charging the customer payment or entering them into their monthly recurring billing cycle for continued shipment of products, to a high risk classification. In addition, they also implemented new requirements for informing the customer about upcoming charges before being able to process the transactions in order to try to help combat the inadvertent charges and chargebacks that plague the industry. For card brands lowering these thresholds is just good business.
Managing fraud and chargeback ratios have far reaching benefits.
Having a strong merchant risk profile is very important for businesses. It is much like having good credit for consumers – they don’t want to be doing things that are constantly bringing that credit score down and merchants don’t want to have things increase their risk profile. While the high cost of dealing with chargebacks is a great motivator for taking steps to manage the situation proactively, it isn’t the only reason. In most cases if a merchant cannot bring their chargeback ratios under control in the allotted amount of time given, the acquiring bank will just shut down their merchant account and this will often end up landing the business on the MATCH(Member Alert to Control High-risk) list. This is a database of terminated merchants, a sort of “blacklist” that acquiring banks use to cross-check whether or not they will take on the risk with an individual business.
Just because you are classified as high risk doesn’t mean you don’t also deserve the best possible rates available to you and to expect the highest level of customer service. In fact high risk business often need more specific customer service than a “normal” business, which is why it is a good idea to partner with a merchant service provider who specializes in and understands the high risk credit card processing industry.
Bankcard Brokers has longstanding relationships with a multitude of global partners, both domestic and international, and are able to provide our merchants with the most stable and transparent solutions for their particular merchant account needs.
Because of our extensive experience with higher risk businesses, Bankcard Brokers is uniquely qualified to identify where a merchant may have the most problems and help them to take steps to better manage their chargebacks and fraud incidence, whether that be through education, changes with website functionality and sales process, or through a chargeback management program. These types of systems are designed to recognize potential issues and give the business the chance to nip it in the bud. Implementing a chargeback management system not only saves you time and money, but will help to guarantee you do not go over these thresholds and end up in hot water.
If you want to know more about how these new thresholds will affect your business, or take a more proactive approach to managing both fraud and chargebacks, give Bankcard Brokers a call today and let one of our ETA-Certified Payments Professionals see how they can help you!