As many eCommerce merchants are aware, Visa implemented changes to their fraud and chargeback monitoring programs earlier this year. But many merchants still have questions about these changes, specifically those categorized as high-risk. While these rule changes have not had an impact on some merchants, it’s important to have a clear understanding of the rules, as non-compliance could result in fines and the termination of your merchant account.
First, Visa has consolidated its various fraud and chargeback monitoring programs into 2. They are now known as Visa’s Fraud Monitoring program (VFMP) and Visa’s Chargeback Monitoring program (VCMP). It is important to note that these two new programs replace all former programs. Perhaps the most noteworthy change is that as of July 2016, merchants globally enter Visa’s Chargeback Monitoring Program if their ratio of chargebacks to sales reaches or exceeds 1% in a given month AND if the chargeback volume exceeds 100. In addition, merchants with a 0.75% chargeback rate and 75 chargebacks in a given month receive an “Early Warning” notification with a focus on reducing chargeback levels in order that the 1%/100 threshold isn’t breached.
Let’s take a closer look at both programs and their respective thresholds:
Visa’s Fraud Monitoring Program reviews transactions reported as fraud (i.e. chargebacks) in a given month. While most chargebacks are the result of fraud/unauthorized claims made by the cardholder, chargebacks can occur for other reasons (ex: Services Not Provided, Canceled Recurring Transaction, Credit Not Processed, etc.) Under VFMP, Visa tracks the total dollar ($) amount of fraud related chargebacks in a given month and compares it to the amount of sales transactions for that same month to calculate a fraud-to-sales amount ratio.
Visa’s Chargeback Monitoring Program tracks the number of chargebacks (for all reason codes) the merchant receives in a given month and compares it to the number of sales transactions for that same month to calculate a chargeback-to-sales count ratio.
Each program has their own thresholds the merchant must adhere to as outlined below.
New Visa Fraud Monitoring Program Thresholds:
- At 0.75% fraud rate and $50,000 in reported fraud in a given month, all merchants will simply be notified and given an opportunity to reduce fraud levels.
Non High-Risk Merchants
- At 1% fraud rate and $75,000 in reported fraud in a given month, non-high risk merchants will have a 4 month “workout” period where only a warning is issued. In month 5 the merchant’s acquirer may be eligible for removal of workout periods, audits or prohibition to board new card-not-present merchants.
- At 2% fraud rate and $250,000 in reported fraud in a given month, non-high risk merchants will receive an assessment of $10,000 for the first 3 months, $25,000 in months 4, 5 and 6, $50,000 in months 7, 8 and 9, and $75,000 in months 10, 11 and 12.
High-Risk Merchants
- At 1% fraud rate and $75,000 in reported fraud in a given month, high-risk merchants will receive an assessment of $10,000 for the first 3 months, $25,000 in months 4, 5 and 6, $50,000 in months 7, 8 and 9, and $75,000 in months 10, 11 and 12.
New Visa Chargeback Monitoring Program Thresholds:
- At 0.75% chargeback rate and 75 chargebacks in a given month, all merchants will simply be notified and given an opportunity to reduce chargeback/fraud levels.
Non High-Risk Merchants
- At 1% chargeback rate and 100 chargebacks in a given month, non-high risk merchants will have a 4 month “workout” period where only a warning is issued. In months 5, 6 and 7 a fee of $50 per chargeback will be assessed. In months 8 and 9, a $100 per chargeback fee will be assessed, and in months 10, 11 and 12 a $100 per chargeback fee will be assessed in addition to a $25,000 review fee.
- At 2% chargeback rate and 500 chargebacks in a given month, non-high risk merchants will receive an assessment of $100 per chargeback. After 6 months of non-compliance, merchants may also receive a $25,000 review fee, in addition to the $100 per chargeback assessment.
High-Risk Merchants
- At 1% chargeback rate and 100 chargebacks in a given month, non-high risk merchants will receive an assessment of $100 per chargeback. After 6 months of non-compliance, merchants may also receive a $25,000 review fee, in addition to the $100 per chargeback assessment.
Another change Visa implemented is faster identification. In the past, Visa’s reporting lag was up to 90 days, so some merchants were being notified of non-compliance up to 3 months after the fact. Now, merchants are identified monthly to determine whether they meet or exceed the thresholds for the previous month’s activity.
If you have any questions about these rules as they relate to your business, please feel free to contact us at 805-449-1191 or Thomas@L3Payments.com.
