Regardless of being fraudulent or legitimate, chargebacks pose as a threat to any business, subjecting you to fees and disruptions, thus it's crucial to minimize them. Be aware that consistently elevated chargeback ratios could place you under the Visa Dispute Monitoring Program (VDMP), which necessitates managing your chargeback rates or dealing with additional penalties and even potential banishment from Visa.
Although the VDMP might appear as punishing to some merchants, it's purposefully developed to incentivize you. In this context, we outline the workings of the program, implications of being part of it, and ways to evade it or withdraw entirely.
What is Visa's Dispute Monitoring Program (VDMP)?
The VDMP reviews merchant chargeback activities to pinpoint any unusual surge in disputes. Once a merchant surpasses a specific monthly chargeback limit, they are flagged and enrolled into the VDMP.
Visa implements two official thresholds: standard and high risk/excessive, based on the monthly calculated ratio of chargebacks to overall transactions. A preliminary "early warning" threshold also exists to signal merchants nearing program entry. These are the thresholds
- Early warning: dispute rate of 0.65% and a minimum of 75 chargebacks
- Standard: dispute rate of 0.9% and a minimum of 100 chargebacks
- Excessive: dispute rate of 1.8% and a minimum of 1,000 chargebacks
The main purpose of the VDMP is not to penalize merchants, but rather to offer assistance, acting as a partner to lower chargeback rates. However, breaching thresholds for an extend period of time will ultimately lead to incurred fines and eventual suspension from accepting Visa transactions.
How VDMP is different from VFMP (Visa Fraud Monitoring Program)
Visa's Fraud Monitoring Program (VFMP) was devised to motivate merchants grappling with excessive instances of particular fraudulent chargebacks to address the problem directly.
The VFMP, akin to VDMP, has thresholds, but these are calculated not on dispute-to-total transaction count but on the ratio of fraudulent chargebacks' total dollar value to genuine transactions. The program allows a four-month grace period for merchants to reduce fraudulent activities before fines are implemented, which, once more, is not applicable to those at the extreme level.
What are the consequences for the VDMP?
The consequences of entering VDMP depend on which level of the program you’re at:
Early warning: This stage acts as a preliminary alert, signifying that you aren't officially enrolled in the program yet. It's a call to action for you to manage your chargeback rates proactively.
Standard: When you reach the standard level, you're granted a four-month timeframe to lower your chargeback rate. Failing to achieve this ushers in an eight-month enforcement phase, subject to penalties. Charges of $50 per dispute are imposed from the fifth to the eighth month. Post the eighth month, a review fee of $25,000 might be levied, with the possibility of an audit (excluding EU merchants). If these rates persist for a year, previous penalties will reapply and a Visa transaction ban may jeopardize your business.
Excessive: Upon breaching the high-risk threshold, you're not afforded a four-month grace period to reduce your disputes. Immediate application of the previously mentioned penalties are enforced.
How can you prevent enrollment in the VDMP?
Exiting Visa's Dispute Monitoring Program (VDMP) is permitted when your dispute rate falls beneath the standard dispute ratio of 0.9% for three successive months. Failure to maintain this ratio in the third month, following two months of compliance, resets the three month cycle. Collaborating with your PSP or a 3rd party chargeback mitigation platform to craft a chargeback mitigation plan to diminish the number of chargebacks received is a requisite for withdrawal. This proactive plan should be put forth to Visa, demonstrating your commitment to resolving the issue.
Deploying chargeback prevention alerts can be very beneficial. These alerts provisionally suspend any cardholder disputes, providing you an opportunity to issue a refund prior to the chargeback issuance.
Additionally, Implementing accurate dispute tracking can serve as an initial step. Visa advises separately tracing card-present and card-not-present disputes, delineating between phone and internet orders, and classifying disputes based on their triggers and resolutions. Specific or recurring issues can then be addressed with pinpoint strategies.
How to avoid enrollment in the VDMP
Of course, the best way to avoid the risk of negative consequences and fines from enrollment in the VDMP is to never enter the program in the first place. This means developing a chargeback prevention strategy that identifies their source and stops them before they can happen. Again, the prevention alerts may be useful here, though there are better things you can do.
For example:
- Implement payment security measures - such as using validation tools like Address Verification Service (AVS), CVV checks, and 3D Secure. These measures can detect potentially fraudulent activity and prevent the occurrence of illegitimate chargebacks.
- Implement chargeback alerts - Visa RDR alerts allow merchants to receive signals when a customer has issued a chargeback with their issuing bank. These alerts can significantly reduce a merchant's dispute rate.
- Clearly articulate all company policies - This includes outlining your return, refund, and cancellation procedures. By doing this, customers can avoid unintentionally canceling transactions which lead to unwanted disputes.
- Regularly update and confirm with customers - Ensure all orders are confirmed with the customer, inform them of the estimated delivery time, and provide tracking information. This communication strategy can help in reducing customer-generated chargebacks.
- Make sure billing descriptors are understandable - Avoid vague terms and ensure your customers can clearly identify the transaction details on their bank statements. A lack of clarity often leads to customers mistakenly disputing transactions they don’t recognize.
Using chargeback alerts
Chargeblast.io's Rapid Dispute Resolution (RDR) service, in collaboration with Visa, provides an efficient solution to manage chargebacks by pre-emptively settling disputed Visa transactions.
To utilize this feature, you can set criteria to determine which disputes should be subjected to RDR. Any matching dispute will transition into a pre-dispute phase and be settled by automatic cardholder credit. Consequently, these settled cases will not contribute to your chargeback ratio, thereby bypassing associated fines and reducing the necessity for dispute monitoring initiatives.
