VMPI Marches on Chargebacks
Table of Contents
- What is VMPI?
- How does VMPI work?
- VMPI and true fraud
- How do I set up VMPI?
- How effective is VMPI?
- Can you chargeback a chargeback?
- How are chargebacks accounted for?
- Are chargebacks always successful?
In the realm of card payments, Visa and Mastercard hold the keys to the kingdom. Their unparalleled market share gives them tremendous power when it comes to establishing the rules and expectations that banks, merchants, and all the other smaller players have to abide by. That’s why we’re always glad to see it when the big card networks take steps to make life a little easier and more fair for merchants. The Visa Merchant Purchase Inquiry (VMPI) program was a great step in this direction, providing merchants with a mechanism for responding to disputes before the dreaded chargeback process starts rolling into motion. VMPI has since been renamed Order Insight, but the capabilities of the program are largely the same.
VMPI was created because Visa observed a massive spike in chargebacks in recent years, many of which were initiated solely because the cardholder did not recognize the transaction when they saw it on their statement. Nearly a fifth of all chargebacks were related to purchases of digital products and services, which creates additional barriers to recognizing and resolving unfamiliar transactions.
Visa reasoned that both chargebacks and digital purchasing were on an upward trend with no signs of slowing down, and merchants and issuing banks would need a proactive way to address disputes and prevent unnecessary chargebacks from occurring.
The solution Visa came up with was VMPI, which is catered to the needs of digital merchants but works just as well for brick and mortar businesses.
Shortly after the launch of VMPI, Verifi created a similar program called Order Insight, which had many of the same capabilities tied to a more user-friendly system. Visa acquired Verifi in 2019, and then late in 2020 decided to merge VMPI and Order Insight under the Order Insight name. Since the change is recent, many people still use the VMPI name interchangeably with Order Insight, but keep in mind that since the merge last August they are now the same program.
What is VMPI?
In the earliest phase of a transaction dispute, immediately after a cardholder calls their issuing bank to question an unrecognized charge, the issuing bank will make queries through the Visa network to gather more information about the transaction. It is at this point, before an actual chargeback has been initiated, that merchants who are enrolled in VMPI receive notice that a customer has asked to open a dispute.
The merchant can respond to this notice by either submitting information and evidence that proves the transaction was valid, or they can bypass the chargeback process (and avoid the associated fees and other drawbacks) by refunding the customer’s money directly.
How does VMPI work?
Understanding exactly how the VMPI process works can be confusing, since so much of it takes place during the pre-chargeback period of inter-bank communication that most merchants aren’t aware of. To clarify things, let’s walk through one example of a typical process step by step.
A customer makes a purchase with an online retailer for a digital media product. They consume the media and are left satisfied with the purchase, but quickly forget about it.
Three weeks later, the customer reviews their credit card statement and sees a transaction from “Digital Media eCommerce Ventures LLC,” a company they’ve never heard of before. It is, in fact, the retailer they purchased from in step one, but they use a different name for their internet store. They can’t remember making this purchase, so they assume it’s fraud or some kind of error.
The customer calls their issuing bank and tells the customer service representative “I didn’t make authorize this transaction, I don’t know what it is.” The issuing bank opens a query with Visa Resolve Online to get more information about the transaction.
VROL recognizes the LLC as a merchant who has signed up with Order Insight. Through an integrated API, they send an electronic message directly to the merchant, notifying them about the pending dispute over the specified transaction.
Through an established response channel, the merchant provides additional information about the transaction: What was purchased, when, through which storefront, and so on.
The issuer receives this information through VROL and passes it back along to the customer, who is able to recognize the transaction with the additional context provided. They withdraw their dispute, no chargebacks happen, the merchant keeps their money, and everybody is happy with the outcome.
VMPI and true fraud
What if the facts of the scenario are different, and the transaction really was fraud perpetrated by a third party? Even in this case, Order Insight can be beneficial to the merchant.
If, at step six, the cardholder says that they still don’t recognize the transaction and wish to proceed with the dispute, a real time fraud notification can be pushed to the merchant. The merchant may opt to reverse the transaction themselves at that point, and can use the information provided to analyze and improve their fraud mitigation efforts.
Friendly fraudsters are usually seeking the path of least resistance, hoping to reach a representative who will immediately escalate their dispute claim and credit their account. When the bank is able to respond with a wealth of details that strongly indicate that they knew exactly what they were purchasing, they’ll often back down.
How do I set up VMPI?
To take advantage of VMPI, merchants need to integrate the system into their CRM. This means having the ability to transmit specific kinds of data at the moment the issuing bank requests it as part of a dispute.
At the beginning of the program, merchants could only connect directly through the Visa network. Because of this, connecting was difficult for anyone but the larger merchants. In the meantime, Visa has expanded its program with facilitators that open access to merchants of all size.
Depending on the capabilities of a merchant's in house tech team, they may be able to handle the integration in house by following Verifi's guidelines.
For those who don't have that capability or just don't want to manage integration, hiring professionals is probably the best option.
A chargeback management firm can assist with these kinds of data integrations as part of their overall goal to build up a merchant's chargeback defenses.
Note that if you want to integrate with the system, you'll need to prove the ability to transmit 141 different data points over a two-second period. If you decide to integrate directly with Verifi, you'll have to do this on your own. If you work with a facilitator, they can help you prepare and to make connecting that much easier.
Merchants can set up automated responses to these notices if they wish, setting up rules for when responses should be automated and when the notice should be reviewed manually. While most merchants choose to have a person involved in reviewing at least some inquiries, there are some who instead choose to automatically send the relevant transaction details, and if that doesn't resolve the issue, automatically issue a refund. This strategy comes with both advantages and disadvantages.
On the one hand, a fully automated system doesn't require any employee time to manage, and issuing refunds for disputes that aren't immediately resolved by providing more information does prevent chargebacks. Since the total cost of a chargeback is often more than twice the transaction amount, a refund is often the cheaper option. On the other hand, automating responses this way means you'll be issuing refunds for any friendly fraud chargebacks that aren't turned away by the fact that the bank has detailed information about the purchase. If fraudsters discover that you issue automatic refunds when a charge is disputed, your business may become a target for those seeking to abuse the chargeback system.
How effective is VMPI?
Merchants who use VMPI effectively can expect to see a real impact on the numbers that matter most—their revenue and their chargeback ratio. Depending on the type of business, it’s realistic to anticipate a reduction in chargebacks of anywhere from 14% to 30%. However, you do have to know how to navigate the system and be able to respond quickly through integrated channels.
While Order Insight will still be impactful without it, merchants who want to get the most out of the program should have people available to monitor incoming notifications 24/7. While many responses through Order Insight can be automated based on rules set up by the merchant, most merchants will have areas in which they want to have some human discretion at work. If no one is available to respond when an inquiry comes in, the merchant may lose the opportunity to prevent a chargeback.
We would advise any merchant struggling with chargebacks to enroll in VMPI. This can be done directly through Visa, but their onboarding process can be slow—especially for smaller merchants. For this reason, many merchants choose to enroll through a certified VMPI Facilitator (like Chargeback Gurus). A qualified facilitator can integrate, test, and train you to use the system much more quickly than Visa alone.
If you haven’t signed up for VMPI yet, it’s time to get on it! For merchants who have questions or need assistance, the Gurus are always here to help.