The Complete Guide to Visa’s New Chargeback Limits
The margin for error for enterprise retailers just became much, much smaller.
How Visa’s New Limits Will Affect Enterprise Retailers
On October 1st, 2019 Visa released updates to their Visa Chargeback Monitoring Program (VCMP) and Visa Fraud Monitoring Program (VFMP). The new limits are intended to help merchants manage their chargeback risk. More stringent chargeback limits will also help Visa identify risky merchants and protect their payments environment.
While the new limits will lead to a safer environment for consumers and Visa, it also reduces the margin for error that ecommerce enterprises have to manage fraud.
Breaching the new requirements may result in:
- Lost revenue due to chargebacks
- Costly penalties from card issuers
- Expensive and time-consuming remediation plans
- Inability to process card payments
In some instances, violators stand to lose more than $25,000 and $100 for every dispute after the merchant enters into one of the monitoring programs. If the merchant is unable to meet the requirements specified in their program, they may lose their ability to process credit card payments – a near-death sentence for any online retailer. To comply with Visa’s chargeback limits, merchants need to understand their chargeback ratio, their fraud ratio, and the limits cited in the VCMP and VFMP.
How to Calculate and Track Key Visa Chargeback and Fraud Metrics
The four primary metrics Visa uses to identify risky merchants are the merchant’s chargeback count, chargeback rate, fraud rate, and fraud volume.
Visa Chargeback Monitoring Program Metrics
1. Measuring a Merchant’s Chargeback Count
A merchant’s chargeback count measures the total number of disputed payments between customers and the retailer. In order for a disputed payment to count towards the retailer’s chargeback count, a formal dispute must be filed. If there is no formal dispute on file, the dispute does not count towards the chargeback count.
2. Calculating a Merchant’s Chargeback Rate
A merchant’s chargeback rate is a measure of the total number of transactions that have resulted in chargebacks. To calculate, use the following function:
3. Measuring a Merchant’s Fraud Volume
A merchant’s fraud volume, in this case, is determined by the total volume of Visa purchases that are made in a given month. This metric is measured in U.S. dollars.
4. Calculating a Merchant’s Fraud Rate
The fraud rate is a measure of a merchant’s total fraud volume divided by the total amount of sales in a given month. To calculate, use the following function:
Once a retailer has identified their chargeback count, chargeback ratio, fraud volume, and fraud ratio the security team can compare their performance with the chargeback requirements cited in the VCMP or the VFMP.
Compliance Requirements and Penalties Associated with Visa’s Chargeback Programs
Before an at-risk retailer is subject to either the Visa Dispute Monitoring Program or the Visa Fraud Monitoring Program, the merchant may receive an early-warning notification from Visa. If they are able to meet the early warning threshold, the merchant has the opportunity to reduce chargebacks and avoid enrollment.
Retailers who are unable to meet Visa’s requirements or exceed Standard or Excessive thresholds are subject to a 12-month review period in either the VCMP or VFMP. Each program comes with its own set of regulations and fines.
Visa Chargeback Monitoring Program
As the name implies, the VCMP is intended for retailers with a significant level of disputed payments or chargebacks. If a retailer’s dispute count and chargeback rate exceed 75 and 0.65% respectively, the merchant will be placed into the VCMP Early Warning program.
The retailer will be given a window to rectify their dispute count and chargeback rate. If they are able to get under the early warning threshold, they will not be subject to any fines.
If a retailer is unable to reduce their dispute count or chargeback rates, or they have already surpassed the Standard or Excessive dispute counts, then they will be entered into the Standard or Excessive programs.
Visa Fraud Monitoring Program
The Visa Fraud Monitoring Program exists for retailers struggling with excessive amounts of fraud. Like the VCMP, there is an early warning program for merchants who have a fraud rate below 0.65% and a fraud volume below $50,000.
Retailers who exceed this threshold are placed into either the Standard or Excessive programs.
How to Prevent Chargebacks and Maintain Compliance
Merchants who find themselves close to, or who have surpassed the limits in the VCMP or the VFMP should take immediate action. Creating comprehensive user profiles, developing ecommerce fraud prevention strategies that focus on the types of fraud that are most responsible for revenue loss, and layering fraud detection and prevention technologies are impactful first steps.
With accurate detection, ecommerce enterprises are able to prevent fraud and chargebacks, increase revenue from genuine sales, and avoid costly remediation plans and penalties.