Visa Dispute and Fraud Monitoring

Card networks like Visa have a vested interest in keeping fraud and chargeback rates as low as possible. They want customers to be comfortable opening credit card accounts and using them to make purchases both in person and online. To that end, Visa monitors each merchant's rate of fraud and chargebacks and incentivizes merchants to keep those rates low through programs that impose consequences if a merchant's fraud or chargeback rate is too high.

Visa has two such programs. The Visa Dispute Monitoring Program (VDMP) is for merchants with an unacceptably high chargeback ratio, and the Visa Fraud Monitoring Program (VFMP) is for merchants with a similarly excessive rate of fraud. Either one can result in serious consequences for merchants who fail to quickly correct course after being enrolled. Let's go over what merchants need to know about these programs to avoid being placed in one, and what those who are already enrolled need to do to get out of them.

1. What Is the Visa Dispute Monitoring Program?
2. What Are the Thresholds for Enrollment in the VDMP?
3. What Are the Fines Merchants Can Be Charged Under the VDMP?
4. How Do I Get Out of the VDMP?
5. What Is the Visa Fraud Monitoring Program?
6. What Are the Thresholds for Enrollment in the VFMP?
7. What Are the Fines Merchants Can be Charged Under the VFMP?
8. How Do I Get Out of the VFMP?
9. Get Help to Get Out or Stay Out of Visa Monitoring Programs
10. What Does Chargebacks Over Threshold Mean?
11. How Is a Chargeback Ratio Calculated?
12. What Is TC40 Data?

Visa charges acquiring banks with the task of reviewing merchant fraud and dispute activity on a monthly basis. When a merchant exceeds the applicable thresholds, the acquiring bank must develop a remediation plan for the merchant in accordance with Visa's policies.

Per Visa's requirements, the remediation plan should identify the root causes of the merchant's fraud and disputes and address them with appropriate actions.

It is the acquiring bank’s responsibility to formulate a remediation plan with the merchant, with the objective of reducing fraud and dispute rates until the merchant is no longer subject to the requirements of the monitoring program.

Placement in the VDMP means that Visa is closely monitoring your dispute activity and will require you to work with your acquiring bank to develop a plan that addresses your chargeback problem. If your chargeback ratio continues to exceed the threshold for four months, or if it exceeds a higher threshold, you will be subject to fines for each additional chargeback you receive.

Visa’s remediation program is built on the assumption that high chargeback rates are the fault of some error or deficiency in the merchant’s business operations, such as:

• Insufficient attention to fraud
• Improper billing procedures
• Lax customer service
• Misleading marketing practices
• Unreliable shipping partners

With the acquirer serving as an intermediary and enforcer, Visa requires merchants to fix these issues by examining the root causes of their chargebacks and taking steps to prevent further disputes. The longer the issues go unresolved, the more the consequences ramp up for the merchant.

Visa instructs acquirers to measure each merchant's dispute ratio at the end of every month, and to only count the first ten disputes for a given card number against each merchant account. In other words, if a cardholder used a single card to make thirty different transactions with the same merchant within a particular month and disputed all of them, only ten of those disputes would count toward the ratio.

To avoid punishing businesses with a low transaction volume for a ratio spike that might be caused by just one or two chargebacks, there is also a minimum number of disputes a merchant must have before they can be enrolled in the VDMP.

Visa also has a lower threshold which, if exceeded, will result in merchants receiving a warning that they may be in danger of entering the program.

• Early warning threshold: A dispute ratio of 0.65% and at least 75 total disputes.
• Standard threshold: A dispute ratio of 0.9% and at least 100 total disputes.
• Excessive threshold: A dispute ratio of 1.8% and at least 1,000 total disputes.

Merchants operating under certain high-risk Merchant Category Codes may be moved to the Excessive level at Visa's discretion, even if they have only reached the Standard threshold.

Starting at the tenth month of enrollment merchants may be required to undergo audits, and merchants outside of the EU may be subject to a $25,000 review fee.

If a merchant remains stuck in the VDMP for a full year, Visa may exercise their right to ban the merchant from the Visa network entirely, cutting them off from accepting any Visa payments. Acquirers can also set their own excessive chargeback thresholds, and it’s not uncommon for them to terminate a merchant account before it reaches the breaking point with Visa.

While not all merchants will face this fate, losing the ability to accept Visa cards can be a business-ending event for a retail merchant. As such, it's extremely important for merchants enrolled in the VDMP to do whatever it takes to lower their dispute ratio and get out as quickly as possible.

The most important thing for merchants to do is to work with their acquiring bank to come up with an effective plan to reduce the number of disputes they receive. This will require them to carefully monitor disputes and learn their root causes.

Visa provides specific recommendations for dispute monitoring. These include tracking card-present and card-not-present disputes separately (for businesses that engage in both types of transactions), tracking phone and internet orders separately, and tracking disputes according to the specific triggering conditions and remediation strategies that go with them.

Merchants subject to the VDMP may also benefit from enlisting the help of chargeback management firms that have experience, insights, and dedicated resources aimed toward analyzing the root causes of chargebacks and implementing proven strategies for preventing them.

Chargeback prevention alerts are one of the most effective tools for merchants looking to lower their chargeback ratio in a hurry. Here's what happens when a merchant is subscribed to these alerts: anytime a cardholder disputes a charge with an issuing bank that belongs to the alert network, the dispute will be briefly put on hold. The merchant will be notified of the dispute and given the chance to intervene by providing a refund to the cardholder, thereby preventing a chargeback.

As a part of a long-term strategy to reduce disputes, chargeback alerts aren't the most efficient solution. They still cost you revenue and they do nothing to fix the root causes of your disputes. But if you're trying to meet the deadlines of a remediation program, they can start preventing a significant percentage of chargebacks almost immediately.

The idea behind VFMP is to help merchants who are experiencing high levels of fraud. It isn't intended as a punishment, but it does come with some limitations. Most notably, merchants in the VFMP may be automatically assigned liability in disputes related to fraud. Essentially, Visa stops giving you the benefit of the doubt. 

Visa tracks fraud-related chargebacks and TC40 data to determine which merchants should be placed into the VFMP.

While the thresholds might look the same as the ones used in the VDMP, note that Visa calculates a merchant's fraud rate using the total dollar amount of fraudulent transactions to legitimate ones, instead of comparing against the total number of transactions.

Just like the VDMP, the VFMP has a minimum transaction volume that must be met to avoid unduly punishing very small businesses, and an early warning threshold that prompts Visa to notify the merchant that they're at risk of entering the program if they don't improve. The fraud program also only counts the first 10 instances of fraud for a given card number.

• Early warning threshold: A fraud rate of 0.65% and at least $50,000 in total fraud.
• Standard threshold: A fraud rate of 0.9% and at least $75,000 in total fraud.
• Excessive threshold: A fraud rate of 1.8% and at least $250,000 in total fraud.

In the United States, merchants who use 3-D Secure (also known by its branded name, Visa Secure) are subject to an additional program, VFMP-3DS, which tracks the fraud rate of transactions that use the technology.

• Early warning threshold: A fraud rate of 0.5% and at least $5,000 in total fraud from Visa Secure transactions.
• Standard threshold: A fraud rate of 0.75% and at least $7,500 in total fraud from Visa Secure transactions.

When enrolled in VFMP-3DS, merchants lose some of the fraud liability protections associated with 3-D Secure.

These fees increase the longer a merchant stays in the VFMP.

After four months at the Standard level or immediately at the Excessive level, merchants are also eligible to receive chargebacks under reason code 10.5: Fraud Monitoring Program.

After twelve months in either the Standard or Excessive programs, Visa may exercise their right to cut off the merchant’s ability to process Visa payments. Merchants in the Excessive program may also be subject to additional fines.

Visa will query merchants about which anti-fraud tools they are using and ask the merchant to submit the fraud remediation plan that they worked out with their acquirer.

Merchants should take a second look at any anti-fraud tools they do not yet use and look into adopting them. Customer service staff should also be trained to recognize the warning signs of fraudulent transactions. Merchants must also follow the specific guidelines they decided on with their acquiring bank.

Get Help to Get Out or Stay Out of Visa Monitoring Programs

While these monitoring programs can provide merchants with specific assistance in identifying chargeback root causes and developing effective prevention plans, the fines and penalties are quite severe. Ideally, you never want to end up in them.

The best way to get out or stay out of these programs is to devote sufficient resources toward investigating the root causes of disputes and fraud before they become a serious problem, and to make use of the right tools, business practices, and third-party solutions for preventing and fighting them. If you need help, contact us and we'll let you know what we can do to proactively remediate your dispute or fraud issues.

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