February 28, 2011
Continuing a chargeback-streamlining process that began back in 2004, Visa Inc. in April will no longer require card issuers to obtain signed paper documentation in disputes involving transactions the cardholder claims are fraudulent. Instead, issuers may submit the required documentation electronically.
Visa is not mandating that issuers eliminate signed documentation, but chances are issuers will jump on the chance to make electronic a cumbersome, labor-intensive step in the chargeback-resolution process that also affects merchants and merchant processors. Today, when cardholders challenge a transaction because they suspect fraud, issuers typically e-mail them a form that they must print out and then fax to the issuer. Beginning April 16, issuers can collect the data they need from cardholders electronically and then pass it on to Visa. That could produce direct benefits for merchants, such as reduced hold times on funds while parties to a disputed transaction await resolution. A cardholder’s challenge generally freezes payment on a transaction.
“It’s quicker, it’s faster,” says Eric George, director of sales for Merchant Warehouse, a big Boston-based independent sales organization. “You won’t have to wait for paper to get passed back and forth.”
Visa first notified merchant acquirers of the coming changes last fall. Visa would not make an executive available for an interview, but a spokesperson tells Digital Transactions News by e-mail that, “During the past several years, Visa has made a number of significant chargeback-rule changes to align, simplify, and shorten the dispute-resolution process. We are continuing to refine our chargeback process to reduce required documentation and promote faster dispute resolution for merchants, acquirers, and issuers.”
The changes affect the following chargeback reason codes: 57, for fraudulent multiple transactions; 62, counterfeit transactions; 81, card-present fraud, and 83, card-absent fraud. Visa also is eliminating documentation requirements in non-fraud chargebacks.
In lieu of cardholder letters, credit and debit card issuers are to obtain from their cardholders such information as whether the cardholder is in possession of the card or if it has been lost or stolen, and as much detail as possible about the transaction. They also are to ascertain if other chargeback conditions have been met, including closing the cardholder account, listing the account in Visa’s exception file, and reporting the transaction through Visa’s fraud-reporting system.
Documentation is to be submitted via the Visa Resolve Online site in the “Comments” section of current electronic chargeback forms. In October, Visa says it will have newly designed questionnaires ready with specific areas for the required information.
Once the cardholder disputes a Visa transaction by informing his or her issuer, the issuer notifies Visa, which acts as referee and then notifies the acquirer, which in turn notifies the merchant. Then it’s up to the merchant to dig out documentation and submit it, says George. “There’s probably about two to three weeks where the whole issue is involved,” he says.
After all the changes are in effect, merchant acquirers will not be able to re-present a chargeback to the issuer for the reason of no documentation. In an announcement of the coming April change for merchants, Visa said, “It’s up to your acquirer to ensure the other applicable technical requirements of the chargeback have been met by the issuer. If you or your acquirer’s internal investigation reveals the issuer did not meet any of these technical requirements, your acquirer has the right to process a re-presentment that specifies which requirement was not met and, if applicable, include any supporting documentation.” Visa’s rule change won’t affect acquirers’ ability to insist on signed cardholder documentation if local law or court proceedings require it.
Visa’s notice says the network will step up chargeback monitoring to identify any issues resulting from the new changes. Monitoring will focus on a number of chargeback reason codes, including some of the ones listed above as well as others.
Eliminating the requirement for paper documentation in fraud transactions “is definitely is going to help a lot of Internet and MOTO [mail-order/telephone-order] merchants, they definitely run into higher-risk transactions,” says Merchant Warehouse’s George. “You want resolution as quickly as possible.”
George wouldn’t predict how much time the new process would save his firm. He estimates, however, based on conversations with Visa and issuer executives, that Visa’s initiatives since 2004, when the network launched the online-resolution site and made the first of several rules changes to simplify the chargeback process, would cut resolution times by half and reduce expenses by at least 20% and possibly to up 50%. A Computerworld article in 2004, when Visa Resolve Online launched, said the network expected savings of $200 million annually. “It’s all about time and manpower,” George says.
MasterCard Inc., American Express Co., and Discover Financial Service still require paper documentation in fraud disputes, George says, adding that he hopes Visa’s changes “will be infectious among the other networks.”
SPECIAL FEATURERead Digital Transactions Online