By Karisse Hendrick, Principal, Chargelytics Consulting
For card-not-present merchants, familiarity with the chargeback process and its guidelines is a necessary part of accepting payments online, over the phone, or via mobile app. While merchants might argue the rules are tilted in consumers’ favor, the process was born out of a search for fairness. Consumers need protection from predatory payment processes implemented by some merchants, and merchants must be able to respond to inaccurate claims by consumers.
While the foundational guidelines for the overall chargeback process do not change often, innovations in business models, changes in consumer expectations and feedback from merchants and payment providers sometimes make it necessary. In 2013, for instance, Visa responded to the uptick in “friendly fraud” and “first-party fraud” reason codes by introducing “compelling evidence”—allowing digital merchants a chance to prove a cardholder participated in a transaction.
As it has in virtually every facet of life, Covid-19 has impacted chargebacks significantly and Visa has offered some updates for 2021 that may aid CNP merchants in fighting ones they think aren’t legitimate. While we are primarily highlighting the rule updates that impact CNP merchants, there are others benefitting consumers, especially in specific areas of commerce such as online investing.
Before highlighting more of these changes, it is important to know a few key details.
- While the updates have been published, they do not go into effect until Oct. 15, 2021. Specifically, these updates only pertain to transactions that are charged back after Oct. 16, 2021.
- Despite all the rules and guidelines, the outcomes of the chargeback process can be, at times, subjective, and can vary based on the scenario, merchant payment processor, issuing bank, and how each merchant responds to their chargebacks. We suggest that you reach out to your payment processor for any specific advice on improving your chargeback “win rate.”
Notable Visa Chargeback Updates & Clarifications for 2021 That May Impact CNP Merchants:
Use of Compelling Evidence Dispute Response
Specific to customer claims of “Merchandise/service not received” (Category 13); Currently, issuers are only required to address the information provided by the merchant (via their payment processor) at the pre-arbitration stage if the documentation/information meets the allowable use of compelling evidence. For chargebacks processed on or after Oct. 16, 2021, the issuer will be required to address all information supplied by the merchant (via payment processor) to support that the cardholder (or an authorized person) received the merchandise or services at the agreed location or by the agreed date/time.
This is especially relevant for retailers that have seen a steep increase in “Merchandise/services not received” chargebacks. Should you provide evidence that the item was delivered to the provided shipping address, the issuer will not be required to review and address the evidence to file a pre-arbitration dispute on the transaction being disputed. The hopeful and expected outcome is that CNP merchants will “lose” less of these chargebacks, especially those filed by customers who may be making false claims about not receiving items they ordered.
Mandatory Wait Time for Travel-Related Consumer Disputes (Category 13)
While reading this Visa guideline for 2021, we assume Visa specifically observed the impact the chargeback process had on many travel-related merchants when travel was suspended indefinitely in March 2020. They especially note the instances when cardholders would receive duplicate refunds for a canceled trip or tour: one from the travel provider, and the other from the merchant of record. For instance, if a flight was booked through an online travel agency and then was canceled, there were cases when the airline and the online travel agency would both issue a refund to the cardholder. This can be a costly mistake for both entities if it happens too much.
The change states that issuers must wait at least 30 days from the date of purchase before a chargeback can be issued for “Merchandise/Services not received” towards merchants in the travel and tourism industry (Merchant category Code 4722). This change will allow merchants time to reschedule the travel or tour, or issue a refund to the card, without risk of as many duplicate refund issues. It could also prevent cardholders from abusing this chargeback reason code directly after their purchase, especially in cases where services were rendered within the 30-day wait period.
Wait Time Limits for Cancelled Merchandise/Services (Dispute Condition 13.7)
Currently, when cardholders contact their issuing bank to file a chargeback claiming they canceled an order for merchandise or a service, they can do so at any time after the transaction has posted to their account. Even if it’s only been a business day or two since the charge. However, this can cause errors and confusion if a refund is in process to the cardholder, but has not posted prior to the chargeback being filed, sometimes causing double reimbursements to the cardholder and/or manual work for the issuer and/or merchant processor.
For chargebacks filed on or after Oct. 16, 2021, to allow all merchants time to issue a credit to a cardholder account if the cardholder contacted them to cancel their order prior to contacting their issuing bank, before initiating a dispute, an issuer must wait 15 calendar days from the date the merchandise was returned, or services were cancelled. The expected outcome is that there will be fewer refunds and chargebacks “crossing paths” in the system, requiring research and corrections. It will continue to be important for merchants to process refunds as soon as possible once the customer asks to cancel their order or subscription for services.
Time Frame Reductions for Third-Party Gift Cards
This mainly for companies that sell gift cards to be used at other businesses and especially in cases when the third-party business has to file for bankruptcy or close entirely. Currently, issuers can process a chargeback for a transaction where merchandise or services were not rendered due to merchant insolvency or bankruptcy no later than 120 calendar days from the last date the cardholder expected to receive the merchandise or services, not to exceed 540 calendar days from the transaction processing date. This dispute time limit leaves merchants that sell third-party gift cards open to potential disputes for an extended time even though the merchant-of-record rendered a service.
As a result, effective for disputes processed on or after Oct. 16, 2021 for transactions that represent the purchase of a third-party gift card without an expiration date, the issuer must initiate the dispute no later than 120 calendar days from the transaction processing date if the merchandise or services were not provided by the third party due to insolvency or bankruptcy.
While the changes are not hugely impactful, it’s clear Visa observed some of the unexpected effects of the Covid-19 crisis on both their cardholders and the millions of merchants that accept Visa worldwide. The updates were in response to some of the administrative errors and issues that could have been resolved with more time or communication between parties in the chargeback process. And, overall, the expected impacts of these changes seem to be positive for card-not-present commerce.
To read the full Visa announcement regarding all rule changes and guideline updates: