Visa Codes to Avoid Chargebacks

Card-not-present merchants are battling increasingly frequent friendly fraud. That type of fraud..The I don’t recognize or I didn’t do it dispute. This occurs when a cardholder makes a purchase, receives the goods or services and initiates a chargeback on the order claiming he or she did not authorize the transaction.

This problem can potentially cripple merchants because of the legitimate nature of the transactions, making it difficult to prove the cardholder is being dishonest. The issuer typically sides with the cardholder, leaving merchants with the cost of goods or services rendered as well as chargeback fees and the time and resources wasted on fighting the chargeback.

Visa recently changed the rules and expanded the scope of what is considered compelling evidence for disputing and representing chargeback for this reason code. The changes included allowing additional types of evidence, added chargeback reason codes and a requirement that issuers attempt to contact the cardholder when a merchant provides compelling evidence.

The changes give acquirers and merchants additional opportunities to resolve disputes. They also mean that cardholders have a better chance to resolve a dispute with the information provided by the merchant. Finally, they provide issuers with clarity on when a dispute should go to pre-arbitration as opposed to arbitration.

Visa has also made other changes to ease the burden on merchants, including allowing merchants to provide compelling evidence to support the position that the charge was not fraudulent, and requiring issuers to a pre-arbitration notice before proceeding to arbitration, which reduces the risk to the merchant when representing fraud reason codes.

The new “Compelling Evidence” rule change does not remedy chargebacks but brings important changes for both issuers and merchants. Merchants can provide information in an attempt to prove the cardholder received goods or services, or participated in or benefited from the transaction. Issuers must initiate pre-arbitration before filing for arbitration. That gives merchants an opportunity to accept liability before incurring arbitration costs, and Visa will be using information from compelling evidence disputes to revise policies and improve the chargeback process

Visa made those changes to reduce the required documentation and streamline the dispute resolution process. While the changes benefit merchants, acquirers and issuers, merchants in particular will benefit with the retrieval request elimination, a simplified dispute resolution process, and reduced time, resources and costs related to the back-office and fraud management. The flexibility in the new rules and the elimination of chargebacks from cards that were electronically read and followed correct acceptance procedures will simplify the process and reduce costs.

Sometimes, an efficient process for total chargeback management requires expertise or in-depth intelligence that may not be available in-house. The rules surrounding chargeback dispute resolution are numerous and ever-changing, and many merchants simply do not have the staffing to keep up in a cost-effective and efficient way. Chargebacks are a way of life for CNP merchants; however, by working with a respected third-party vendor, they can maximize their options without breaking the bank.

Reason Code 83 (Fraud Card-Not-Present) occurs when an issuer receives a complaint from the cardholder related to a CNP transaction. The cardholder claims he or she did not authorize the transaction or that the order was charged to a fictitious account number without approval.

The newest changes to Reason Code 83, a chargeback management protocol, offer merchants a streamlined approach to fighting chargebacks and will ultimately reduce back-office handling and fraud management costs. Independent sales organizations and sales agents who understand chargeback reason codes and their effect on chargeback rates can teach merchants how to prevent chargebacks before they become an issue and successfully represent those that they can’t prevent.

Posted in Best Practices for Merchants, EMV EuroPay MasterCard Visa, Visa MasterCard American Express Tagged with: account, account number, acquirers, agents, Back Office, card, card holder, card-not-present, Card-not-present merchants, cardholder, cards, chargeback, chargeback fees, chargeback rates, cnp, CNP merchants, CNP transaction, fees, fraud, fraud management, Independent sales, independent sales organizations, issuer, management protocol, Merchant's, organizations, protocol, purchase, Rates, resolution, resolution process, resources, risk, sales agents, services, transaction, visa

Three dimensions merchants must look for in a payment system and Difference between a PSP and ISO

Three dimensions merchants must look for in a payment system PSP and ISO:

1. Ability to adapt and customize the solution.

2. Solutions that support broad range of payment methods.

3. Supports a full set of different channels and devices.

Difference between a PSP and ISO in the payments ecosystem? Online and Mobile Payments:

There are two types of merchant service providers and not all service providers are made equal, Processors and Resellers:

Resellers are known in the industry as Independent Sales Organizations (ISO’s) and/or Merchant Service Providers (MSP’s).

1) Resellers or ISOs – ISOs resell the products or services of one or multiple processors. They can also develop their own or aggregate other value added products and services. ISO’s range from a little sketchy to best in class providers.

2) Processors – Also known as Acquirers, processors are distinguished by their ability to actually process a transaction. To be a processor, a company must have the technical capability to receive transaction data from a merchant via a telephone line or the internet and then communicate with the appropriate financial institutions to approve or decline transactions. Processors must also be able to settle completed transactions through financial institutions in order to deposit funds into the merchant’s bank account.

Processors can be banks or non-banks. While processors do maintain a direct sales force of their own, they primarily work through ISOs to acquire and maintain their merchant base. A processor’s business model is really one of economies of scale. They’re volume shops. They essentially outsource the sales function to ISOs. The processing industry is highly concentrated with the top five processors maintaining over 70% of all transaction volume.

Types of ISOs: 

1. Banks – Banks of all shapes and sizes are ISOs. Banks entered into the merchant services business because it was a natural fit with their product and service offerings. It’s a way to increase revenue per customer. Most, but not all banks, will private label the services so that it’s difficult to distinguish whether they are a processor or ISO. The benefit of working with a bank is that you can consolidate your financial services. The drawback is, the you usually get out of the box solutions and service.

2. Non-banks – These types of ISOs range from some of the most dynamic and capable providers to firms who don’t represent the industry very well.

Industry Dynamics – There are a few dynamics that make the industry landscape quite interesting. First, there are very barriers to entry due to the lack of certifications, licenses, and capital requirements. Secondly, there really is no active regulatory body that oversees and enforces acceptable practices. So naturally, with these two market conditions, merchants need to be mindful and thorough in selecting a provider.

Processors versus ISOs In comparing the two, ISOs offer all of the products and services that processors do (because they are reselling) but processors can’t always offer the same products and services as ISOs. This is because ISOs can resell for multiple processors and can either develop their own technologies or aggregate solutions from other providers. ISOs have largely been the most successful creators of value-added services. ISO’s also tend to be smaller, which usually (but not always) leads to better customer service.

Processors are usually a safer bet for newer merchants that are still learning about the industry. Most still maintain what consider less-than-upfront pricing practices, but with their services it is less common to hear about some of the more serious problems that merchants encounter when they deal with the wrong ISO. As for price, in most cases, there really is very little to no difference. I argue, and fully disclose my vested interest, that in nearly any situation a best in class, non-bank ISO can provide more value than a processor.

Posted in Best Practices for Merchants, Credit card Processing, Electronic Payments, Financial Services, Mail Order Telephone Order, Merchant Services Account, Visa MasterCard American Express Tagged with: account, acquirers, aggregate, approve or decline, bank, best in class, channels, customize, data, deposit, devices, financial, independent sales organizations, internet, ISO, merchant service providers, Merchant's, mobile, msp, non-banks, online, payment methods, payment system, payments, processors, psp, resellers, solution, telephone, transaction, value added