Whose Fraud is That Anyway?
Visa has issued new operating regulations regarding fraud chargebacks that took effect April 16, 2011. The online regulations were just recently updated. Visa has their take on the changes to the chargeback process available.
In a nutshell, Visa has changed the rules to allow issuing banks to issue so-called “Fraudulent Transactions” chargebacks of reason code 83 without any requirement for documentation to be made available to merchants. Before these changes, issuing an 83 chargeback required the end-user to physically or e-sign a statement that there was fraud on their card, and provide a basic reason about why the charge was fraudulent. In addition an issuing bank had to provide the cardholder’s name and details on other fraudulent charges that occurred in the same general time frame. Now issuing banks can present type 83 chargebacks without even disclosing the cardholder name, much less the rest of the information that traditionally had been provided.
One might think, “these are just fraudulent charges so isn’t this more efficient?” Historically, 60% of the chargebacks that digital services companies receive are in reason code 83. Over the two years prior to April 2011, we’ve generally found the need to dispute between 28% and 33% of reason code 83 chargebacks and we’ve won between 60% and 63% of the ones we fought depending on vertical. What that means is that “friendly fraud” in chargebacks marked with reason code 83 make up at least 11% of the volume of all chargebacks received by digital companies. Since the average chargeback value is typically twice the average ticket of a digital merchant, we’re talking about issuing banks taking 0.2% of all digital services revenue and pocketing it by allowing their cardholders to get away with theft.
Of course those statistics were in a soon to be bygone era where merchants and Vindicia could hold issuers accountable. When the business imperative for the issuing bank is to retain the cardholder while they are talking with them on the phone, it should surprise no one that issuers will route many more chargebacks into reason code 83. With no accountability, they’ll be able to make their cardholder happy by allowing them to steal a digital service while extracting the cash from the merchant’s pocket and adding the additional insult of a chargeback fee! Everyone but the digital leader wins.
We’re frankly not happy about this turn of events and think that it violates some fundamental rules of law. Stay tuned as we hope to be able to create some more fairness and accountability on behalf of our digital merchants.