2020 Visa Chargebacks Guide
Visa is the world’s largest card network, with an annual purchase volume that exceeds $1 trillion. Nearly every merchant that accepts credit cards accepts Visa, and so it is vitally important for merchants to understand Visa’s chargeback rules, especially as they relate to fighting fraudulent chargebacks that come through the Visa network.
A solid grasp of these rules can help merchants win disputes, prevent chargebacks, and lower their chargeback rate. Of course, some of the rules are more relevant to common chargeback situations than others. What are the most important things for merchants to know about Visa chargebacks?
When a cardholder files a dispute with the issuing bank that provides their Visa-branded credit card, the transaction becomes a Visa Chargeback, also known as a Visa Dispute. A transaction can be disputed whether it was made online, in person at a retail store, over the phone, or via mail.
The issuing bank handles the chargeback according to rules set by Visa. The issuer credits the cardholder’s account for the amount of the transaction and notifies the merchant’s acquiring bank that a chargeback has been filed. The acquirer will then notify the merchant and debit their account for the transaction amount, plus any chargeback fees that have accrued.
Each chargeback is assigned a reason code that explains the justification for the chargeback, and Visa groups its various reason codes into several broad dispute categories.
Visa’s rules allow merchants to fight chargebacks by re-presenting the transaction; this is chargeback representment. Visa specifies compelling evidence which must be included with the representment in order to prove that the chargeback should not have been granted. If the issuer accepts the merchant’s evidence, they will reverse the chargeback. If the parties involved in the chargeback do not accept the outcome at this point, Visa will decide the matter in arbitration.
Why Does Visa Accept Chargebacks?
Accounting to the Fair Credit Billing Act, consumers using their credit card to engage in a transaction have the right to file a dispute on any transaction they engaged with the merchant. The bill was introduced to protect consumers from merchants engaging in unfair billing practices.
The origin of chargebacks goes back to the Fair Credit Billing Act. This legislation, which became federal law in the United States in 1974, was created to address consumer concerns about a new financial product: the credit card.
The purpose of the FCBA was to protect cardholders from fraud and unfair billing practices. Among other reforms, the legislation granted cardholders the right to dispute fraudulent or incorrect transactions. There are some specifics in the FCBA—for example, it establishes 60 days as the minimum timeframe to dispute a charge—but for the most part, it allows card networks and issuing banks to create their own procedures for handling chargebacks.
The existence of chargebacks allows consumers to feel more confident using their credit cards freely, knowing that they won’t be held responsible for the actions of identity thieves, deceptive merchants, and other fraudsters. However, the chargeback process also has loopholes that can be exploited, allowing cardholders to commit—sometimes unintentionally, often purposefully—so-called “friendly fraud,” when they obtain a chargeback by making false claims.
Note that debit card chargebacks are dealt with under a different piece of legislation, the Electronic Fund Transfer Act of 1978. Debit chargebacks sometimes carry different timeframes and liability caps.
What are the Visa Dispute Categories?
Visa specifies four dispute categories that encompass its various reason codes.
- Category 10: Fraud
This includes transactions where an available EMV chip was not used for authorization, where stolen payment card credentials were used in a card-present or card-not-present environment, and transactions flagged by the Visa Fraud Monitoring Program.
- Category 11: Authorization
Disputes in this category include transactions processed without an authorization, with a declined authorization, or where a Card Recovery Bulletin was ignored.
- Category 12: Processing Errors
Processing error disputes can include late presentments; incorrect transaction codes, currencies, account numbers, or accounts; duplicate processing, duplicate payments involving payment by other means, and transactions containing invalid data.
- Category 13: Customer Disputes
This category tends to deal with issues that can crop up between the customer and the merchant, such as: merchandise or services not received, recurring transactions that the cardholder attempted to cancel, merchandise that is counterfeit or defective, merchandise that does not match the product description, failure to process a refund credit, and other merchant misrepresentations.
Why Do Visa Disputes Occur?
By looking up the reason code assigned to each Visa chargeback, merchants can understand the general outline of the cardholder’s claim. However, every merchant is different, and to understand the specific causes behind each chargeback, you must carefully examine the transaction details and other chargeback data and draw the logical connections between the dispute reasons and the processes or product issues that are leading to them.
Misleading marketing is a frequent cause of chargebacks. Some merchants make big claims and promises in their sales and marketing materials that their products can’t really live up to. Consumers have chargeback rights in this circumstance, and merchants may not be able to fight them.
While purposeful friendly fraud chargebacks are common, some cardholders will file these chargebacks without ill intent when they see a transaction they don’t recognize on their bank statement. This is often the case when merchants use descriptors that do not match their familiar branding or business name.
Friendly fraud chargebacks also occur when cardholders feel that they have tried to resolve an issue with the merchant, but the merchant is stonewalling them. While the merchant may feel that they have a justifiable reason for a slow or unsatisfactory response, attentive customer service and a generous refund policy can go a long way toward preventing these chargebacks.
True fraud chargebacks occur when a fraudster obtains credit card payment credentials, either by stealing them directly or by acquiring numbers harvested from data breaches on the black market, and uses them to make purchases. These chargebacks cannot be fought and are difficult to prevent, but anti-fraud tools and rigorous security protocols can work to reduce them.
Authorization and processing chargebacks are often caused by merchants following outdated or erroneous procedures. Reviewing and updating these processes should suffice to eliminate these chargebacks, if you can identify the specific errors causing them.
What are the Most Common Card-Not-Present Visa Dispute Reason Codes?
While Visa allows a wide range of dispute reason codes designed to encompass all of the situations in which cardholders have chargeback rights, it is certainly the case that some chargebacks are much more common than others.
- 10.4 Other Fraud—Card Absent Environment
This indicates that the cardholder has claimed that they did not authorize or participate in a card-not-present transaction processed by the merchant. This is the classic case of true fraud in ecommerce where a fraudster uses a stolen card to purchase something for their own benefit.
This is also a common friendly fraud reason code, especially when the cardholder doesn’t recognize the transaction on their statement.
- 11.3 No Authorization
When a merchant processes a transaction where authorization was required but not obtained, the cardholder has chargeback rights.
- 12.5 Incorrect Amount
If the cardholder believes that the amount they were charged was not what they agreed to pay, their dispute will be filed under this reason code. This can occur due to number transposition or other data errors when the transaction is entered for processing, or it may result for a misunderstanding about fees or taxes included in the final price.
- 12.6 Duplicate Processing
Here, the cardholder is claiming that a single transaction was processed twice, resulting in a double charge to their account.
- 13.1 Merchandise/Service Not Received
Many situations can result in this frequently-encountered chargeback. They can occur when the merchant or carrier really does fail to deliver the product to the cardholder, but also when goods are not shipped by the delivery date given, or when the merchant bills the cardholder before shipping the transaction.
Poor communication between the merchant and cardholder about shipping and delivery times often lead to this kind of chargeback.
- 13.2 Cancelled Recurring Transaction
If a merchant processes a recurring billing transaction after the cardholder’s subscription or payment card account has been cancelled, the cardholder can dispute the transaction under this reason code. Merchants must always be careful to cease billing immediately when a customer terminates a subscription.
- 13.3 Not as Described or Defective Merchandise/Services
To meet the criteria for this reason code, the cardholder will have to state that the merchandise or services they received did not match the description provided by the merchant, or that merchandise was damaged or defective upon arrival.
These disputes can get into highly subjective territory when cardholders cite the quality of the merchandise as the justification, but some merchants set themselves up for these chargebacks by making grandiose claims about their products that they’re not actually able to fulfill.
- 13.6 Credit Not Processed
Cardholders file these chargebacks when a refund credit or voided transaction receipt has not been processed by the merchant. These chargebacks can easily be avoided by processing credits promptly, as soon as possible after the cardholder has been notified that a refund will be given.
- 13.7 Cancelled Merchandise/Services
Similar to the previous reason code, this occurs when a cardholder cancels services or returns a product and does not receive a refund that they understand to be due. Once again, this is easily avoided by quickly issuing refunds, but it can also happen when a merchant has not adequately communicated their refund policy to the cardholder.
What is the Compelling Evidence Requirement for Visa Disputes?
Generally speaking, compelling evidence in a chargeback representation will consist of proof that the cardholder knowingly participated in the transaction and received the intended benefit thereof. Merchants have the right to submit compelling evidence for the 10.4 (Other Fraud—Card Absent Environment) and 13.1 (Merchandise/Services Not Received) reason codes.
The following evidence can be submitted for either reason code, when appropriate:
- Photographs, emails, or other evidence that the cardholder has received or is using the goods or services they purchased.
- In situations where purchased goods were to be picked up from the merchant’s location: a signature, copy of identification, or other identifying information provided by the cardholder at the time of pickup.
- If the purchased goods were shipped to the cardholder: documentation from the carrier confirming that the merchandise was delivered to the cardholder at the correct time and address.
- For digital goods: network or server data that proves the cardholder downloaded the product or logged in to use it. This can include the cardholder’s IP address and geolocation, information about the device used, confirmation that the cardholder has a verified customer profile on the merchant’s site, proof that the cardholder accessed digital goods or services through that profile after the transaction date, and transaction data showing that the cardholder has made previous, undisputed transactions with the merchant.
- When purchased goods are shipped to a business address: proof that the cardholder was employed at that address at the time of delivery.
- For transportation-related transactions, including Travel & Expense: proof that the ticket was received at the cardholder’s billing address, proof that the ticket or boarding passed was scanned, evidence that the cardholder earned or redeemed frequent flier miles related to the transaction, or evidence of subsequent related transactions such as seat upgrades or on-board meals.
For the 10.4 reason code only, the following compelling evidence may also apply:
- A signed order form for a mail or phone order transaction.
- For airline transactions: documentation of the cardholder’s name on both the purchased itinerary and the departed flight manifest.
While the various card networks have similar chargeback processes, they differ enough in the details that merchants must have means of confidently navigating the many reason codes, evidence requirements, timeframes, and other variables that will impact their ability to fight chargebacks.
While guides like this can serve as a helpful reference for merchants, large or intractable chargeback problems may require more focus and specialized attention than smaller merchants can readily provide on their own. This is where chargeback management firms can provide valuable assistance, helping merchants navigate complicated card network rules to develop a chargeback defense strategy that can protect them from preventable chargebacks, no matter the source.