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New Visa Rules Offer COVID-19 Relief for Some Merchants

By Monica Eaton-Cardone is an international entrepreneur, speaker, and author, Co-Founder and COO of Chargebacks911® 

You don’t need me to tell you that the coronavirus outbreak is inflicting serious pain on businesses operating in the travel and entertainment space. Between a collapse in demand, a flood of cancellations, and widespread uncertainty about the months ahead, the slump could have a profound and lasting impact unlike anything we’ve seen before.

It’s not all as bleak as it seems, though. Institutional players like Visa recognize the strain placed on merchants, and are attempting to mitigate the worst effects of the situation.

What is the Visa COVID-19 Dispute Monitoring Program?

Monica Eaton-Cardone
Monica Eaton-Cardone

Visa acknowledged that, under the present circumstances, travel and entertainment merchants could find themselves facing a surge in chargeback activity. In response, Visa rolled out their new COVID-19 Dispute Monitoring Program on April 1.In the company’s words, this new program helps “maintain the integrity of the dispute process by reducing invalid disputes initiated into the system.”

What does that mean? In short, Visa is shifting more of the onus onto issuers to review cases and reject invalid customer inquiries. Before, there were comparatively-minimal consequences for issuers who submit chargeback cases without a valid reason. While we have the Visa Issuer Monitoring Program, it’s still a relatively light degree of oversight.

Now, in addition to requiring issuers to reverse invalid disputes, Visa will flag any issuer who submits more than 50 invalid disputes a day. Issuers that are repeatedly flagged will be regarded as engaging in “egregious noncompliance.”

Noncompliant issuers may face costly non-compliance assessments imposed by Visa to address the problem. If it remains an ongoing issue, the bank could even lose their right to file disputes under select chargeback reason codes.

So, what makes a dispute valid? According to Visa, an issuer may only file a dispute if all of the following conditions apply:

  • The case includes a detailed explanation of the reason for the dispute.
  • The merchant in question is able to provide the service purchased, but refuses to do so.
  • The cardholder already attempted to resolve the problem through the merchant, and is out of options.

It’s important to keep in mind, though, that this program applies only to transactions involving a business that uses a merchant category code (MCC) attached to the travel and entertainment industry. This can include air carriers, lodging, transportation, travel services, and similar businesses.

Changes to Excessive Fraud & Dispute Programs

The Visa Dispute Monitoring Program (VDMP) and Visa Fraud Monitoring Program (VFMP) have traditionally been used as mechanisms to help reduce overall chargeback filings. They impose extra fees and restrictions on merchants who experience higher-than-average monthly chargebacks filings.

The VDMP and VFMP are both meant to incentivize merchants to keep chargebacks low and encourage compliance. This, in turn, serves to protect Visa’s brand by identifying potentially-problematic merchants.

The people at Visa aren’t oblivious to the fact that merchants are facing unprecedented challenges at the moment. Like with the COVID-19 Dispute Monitoring Program, they’re aware that strict standards imposed under normal conditions wouldn’t be reasonable in the present moment. In response, the company is modifying VFMP and VDMP guidelines for the time being.

Both the VDMP and VFMP are temporarily suspended for merchants in the travel and entertainment space. This is currently set to last through July, which is the end of the current compliance cycle. This will give merchants in heavily-impacted verticals more leeway to manage fraud and chargebacks without worrying about violating thresholds imposed by Visa.

The card network is also partially suspending the Visa Acquirer Monitoring Program (VAMP) through the end of the current compliance cycle as well. Again, though, this only applies to disputes involving a transaction identified with a travel and entertainment industry MCC. Regular VAMP guidelines still apply for all other disputes.

Does This Help Other Merchants?

This is all great news for those in the travel and entertainment vertical…but what about businesses operating in other industries? Fortunately, there is some good news on that front.

Visa is empowering their Regional Risk teams to either suspend or waive all VDMP or VFMP fees through this compliance cycle. This means no merchant in any vertical will be unduly “punished” if their chargeback rate suddenly spikes as a result of the COVID-19 crisis.

Now, there are some caveats here to keep in mind. First, the decision is at the discretion of regional teams. If they choose not to suspend VDMP fees, then the programs will continue to work as usual.

Second, you must also be able to show that your business has been directly impacted by the COVID-19 outbreak. Visa will not simply suspend program fees unless you can demonstrate that you actually have a need for them to do so.

Finally, this doesn’t mean the programs themselves are suspended; rather, just the fees associated. Merchants still need to be wary of chargeback thresholds, or else they may end up in one of these compliance programs. This would have long-term consequences that could last even well-after the worst of the coronavirus outbreak passes.

A Good First Step, but More is Needed

These are positive changes, to be certain. Anything that can offer relief to suffering merchants during this crisis is a welcome move on behalf of the card brands. However, we need other, long-term changes to ensure that businesses can get up and running smoothly once the crisis abates.

The chargeback process, as a whole, was already in need of change before the COVID-19 pandemic arrived. While chargebacks were originally adopted decades ago as a consumer protection mechanism, in recent years we’ve seen a tendency among cardholders to abuse the system by engaging in a practice known as friendly fraud. This tactic is prevalent in digital sales channels.

Recent data shows that housebound consumers are doing more shopping online as a result of quarantine conditions. 21% of buyers say they’re shopping online more than they were before the outbreak began.

Plus, even in the brick-and-mortar environment, there’s been a gravitational shift toward digital purchasing channels. Consumers are embracing delivery and curbside pickup like never before; nearly one-third of shoppers are taking advantage of BOPUS (buy online, pick up in-store) offerings. Many of these shoppers will continue to use these new sales channels, even once the worst of the crisis passes. If we don’t rethink our approach to disputes now, we risk inviting many of the same problems plaguing online retail into a new channel.

Part of the problem is inconsistency in chargeback policy and procedures. We need consistent guidance across card brands on how to manage and resolve disputes. While these current changes will suffice as a temporary measure, the industry’s approach to chargeback and fraud management needs a much broader reevaluation.