Visa Lowers Chargeback & Fraud Thresholds - VFMP & VDMP

Table of Contents

1. What is the Visa Fraud Monitoring Program?
2. What is the Visa Dispute Monitoring Program?
3. What do VFMP and VDMP changes mean for merchants?
4. VCMP & VFMP: before and after
5. How do chargebacks work with Visa?
6. How long can a cardholder file a chargeback with Visa?
7. Do chargebacks cost merchants?

In order to ensure customer confidence in their credit cards, Visa has an incentive to try to prevent fraud and reduce the number of disputes on their network. While they take some measures to tackle these problems themselves, they also make sure merchants are incentivized to prevent fraud and disputes as well. One of the ways they do this is with a pair of programs designed to encourage merchants with high rates of fraud or chargebacks to correct the problem as quickly as possible.

Merchants with high fraud rates are handled through the Visa Fraud Monitoring Program (VFMP) and those with high chargeback rates are subject to the Visa Dispute Monitoring Program (VDMP).

Both programs begin by warning merchants that their fraud or dispute rates are too high. They then require the merchant's acquiring bank to work with them to come up with an action plan to get the problem under control. If the problem isn't addressed quickly enough, hefty fines can result.

In October 2019, Visa lowered the thresholds for both of these programs, making it easier for merchants to find themselves enrolled in one or the other.

What do merchants need to know about these programs and the changes to their rules?

Here's how Visa describes the program in their public rules document:

"Visa monitors Merchant Outlets that generate an excessive level of fraud through the Visa Fraud Monitoring Program (VFMP), which is split into 3 timelines: standard, high-risk, and excessive."

When a merchant meets Visa's predetermined criterion, the acquiring bank is notified and given 10 days to notify the merchant.

From there, a merchant and their acquiring bank will have approximately one month to research the source of the fraud and submit a fraud remediation plan to Visa. Once you've been able to keep your fraud levels down for 3 months, you will be eligible to exit the Visa Fraud Monitoring Program.

"Visa may require the Acquirer or its Merchant to deploy appropriate fraud remediation tools or technologies to address unusual activity in the individual cases identified through the VFMP. A Merchant Outlet will exit the VFMP if it is below the program thresholds for 3 consecutive months."

Visa's Fraud Monitoring Program isn't something merchants can be enrolled in indefinitely. There is a very real limit to how much time merchants are allotted while in the Visa Fraud Monitoring Program.

12 months after the initial notification, if your fraud levels have not been dramatically reduced, Visa will evaluate your merchant account for "disqualification."

In other words, you will no longer be able to process transactions with Visa. 

Knowing this, some merchants' first thought is to try to find a way around the VFMP,  doing things like slightly changing the name of their store to avoid detection. Let me stop you right there, though.

Do NOT under any circumstances attempt to bypass the VFMP.

If you do this, and Visa finds out, one or both of these things will happen:

1. Visa will fine the merchant per-month, per-outlet
2. Visa will permanently disqualify the merchant and its principal owners from the Visa program.

If you find yourself enrolled in VFMP, use the tools available to you and the knowledge of your acquiring bank's team to begin fighting back against the fraudsters attacking your livelihood.

The VFMP and the VDMP each have three categories: standard, high-risk, and excessive. They also have an early warning threshold which warns merchants that are approaching the limit without imposing any penalties.

When a merchant reaches Visa's predefined early warning dispute threshold of 0.65%, Visa asks the merchant and their acquirer to identify the root cause of the merchant's chargeback issues. Once the chargeback sources have been properly identified, the merchant and acquirer will develop a thorough chargeback reduction strategy (aka chargeback mitigation plan) and submit it to Visa for approval. 

The standard level of each program has a four-month grace period during which no additional fees will be charged, allowing merchants who address the problem immediately to exit it before any penalties apply. The excessive level has no such grace period, and merchants in the high-risk category who would be enrolled at the standard level will instead be enrolled at the excessive level automatically.

What do VFMP and VDMP changes mean for merchants?

Visa's goals in changing thresholds for the Visa Fraud Monitoring Program and the Visa Dispute Monitoring Program are twofold:

1. Protect Visa and their constituents by mitigating risk.
2. Ensure that merchants' are using ethical sales tactics, and that transactions are processed, and data stored, on PCI compliant systems. 

Merchants with chargeback and fraud mitigation strategies already in place are unlikely to be affected, but those without them will be at greater risk of entering one or both of the programs, resulting in higher fines and administrative costs.

VDMP & VFMP: before and after

Here are the thresholds for the VFMP and VDMP before and after the changes that took place in October 2019.

Of course, the best approach to staying within the threshold is to put the right tools and strategies in place to prevent chargebacks from happening in the first place.

If you are a merchant facing significant levels of chargebacks or fraud, then don't rest on your heels, because Visa won't let you.

Make sure that you understand your thresholds and the root causes of your fraud or chargeback cases. Doing so will help you save money, retain customers, and avoid problems with your credit card network.

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