New chargeback thresholds and how to reduce fraud
October 2019 brought new dispute and fraud thresholds as VISA shifts its program. This means that you should monitor your chargeback ratio more closely. What can you do to minimize fraud and chargeback risk?
For context, the VISA Chargeback Monitoring Program (VCMP) and the VISA Fraud Monitoring Program (VFMP) are made to monitor the merchant’s fraud and chargeback risk. While the chargeback ratio refers to the number of chargebacks in a single month divided by the total number of transactions in the same month, fraud ratio is the total value of transactions (in US dollars) lost to fraud in a certain month.
Wondering what the programs are for? They protect the integrity of the VISA payment system and cardholders against fraud.
Simply put, you need to keep chargebacks (also known as disputes) and fraud at an acceptable level. Otherwise, you’ll be put under one of the monitoring programs, which comes with fees and fines.
If the level of disputes is and remains below the standard threshold for three consecutive months, you’ll be removed from the programs. If any of the thresholds are exceeded during this period, you’ll be placed back into the program. Keep in mind that the fine is applicable until removal from the program.
What will change?
VISA Chargeback Monitoring Program
There are three threshold categories: Early warning, Standard, and Excessive.
Early warning is a notification for both merchants and acquirers, so they should investigate it and implement appropriate action before a threshold is exceeded. This means that when the volume reaches a predetermined threshold, you have time to bring the levels down.
Before 1 October 2019 the Early warning started when the dispute rate was 0.75%. Now it’s 0.65% (dispute count remains unchanged and it’s 75). The Standard threshold for dispute rate changed from 1% to 0.9%, and the Excessive threshold from 2% to 1.8%.
|Before October 1, 2019||Now|
VISA Fraud Monitoring Program
Keep in mind that both dollar value and chargeback ratio thresholds need to be met.
|Before October 1, 2019||Now|
|Low Risk program||
|High Risk program||
To exit any of the programs you need to keep the chargeback or fraud ratio below the accepted threshold for three consecutive months.
Perhaps 0.1% doesn’t seem a lot, but there are industries (mostly high-risk ones) that can be affected by threshold changes. It also makes a difference for merchants that were dangerously close to the 1% threshold before.
What can you do to reduce chargebacks and prevent fraud?
The analytic software company FICO estimates that by 2020 fraud will cause a $34.4 billion loss. Merchants that have effective anti-fraud tools and chargeback mitigation strategies in place can rest assured. If you’re not one of them, you need to develop a risk control strategy right away.
I guess that you have implemented at least strong customer authentication that goes along with the PSD2 regulations. For now the main verification method compliant with PSD2 is 3D Secure, so it’s recommended to use 3DS2 will help you mitigate the chargeback ratio. It gives you protection without causing any drop in conversion.
The challenge is turning away good sales without overstepping a chargeback threshold. We highly recommend you to have multilevel risk protection in place to effectively reduce suspicious activity and face fewer false positives (here’s how to reduce false positives). Keep in mind that standard fraud controls like geotargeting or AVS are no longer enough.
Additional layers of fraud protection help you tighten internal fraud control. And they don’t have to come at extra costs when you choose a reliable payment platform to work with.
The thing is to find a balance in fraud prevention and spot fraud without disrupting the customers experience. Also, be aware of so-called friendly fraud that hurts profits in the long run. Look for a payment solution that provides anti-fraud tools and keeps payment security at the forefront.
The best scenario is when you have AI-based technology in place with filters that automatically adjust to a certain industry. Solutions that are more accurate than rule-based systems, so you won’t block legitimate customers. Ones that identify fraud as it emerges in real time.
You need to take necessary steps to prevent suspicious activity of your customers that can affect both your business and even the whole industry you operate in. Otherwise, you can face massive financial losses.
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