VCR and Chargebacks: How is your conversion going?

22 May

No, this is not a blog post from the 1980’s, nor is it a discussion of videocassette recorders. This is the biggest change in the history of chargebacks. This is the beginning of a digital revolution happening within the oldest of old school: consumer banking. And, if you don’t think you need to pay attention to this, you may want to consider a Betamax VCR…

Why is this such a big deal? Prior to the new Visa Claims Resolution (VCR) process, banks had up to 100 days to respond to a dispute. All while ecommerce merchants were held to a higher standard—something closer to 30 days. You may be asking, really? Why would Visa allow banks such latitude while holding ecommerce merchants to less than a month? The answer has to do with traditional 1970’s style banking, slow paper driven processes, and the lack of modern data standards. Now the tables are turned…

With VCR, banks are being forced into a modern digital process for claims resolution. Now, they are likely to respond in days. This places significantly increased pressure on ecommerce merchants, not only due to shorter response windows, but also potential fines imposed by the bank if the merchant fails to respond. Most banks are requiring a response in no more than 20 days; ideally you should respond in less than a week. This requires more time and effort on the part of your chargeback handling team. A merchant’s failure to adapt could result in higher losses as well as increased chargebacks.

Generally speaking, the VCR process requires ecommerce merchants to actively manage, with precision around compelling evidence, chargeback types, and response timeframes. The old “reason codes” have been replaced with two process categories: allocation disputes and collaboration disputes. Reason codes were sloppy and allowed ambiguity like “unrecognized transaction.” That now defunct reason code “75” was a short-cut when nothing else made sense. Now, your finance staff must provide clarity on whether the chargeback is fraud related or a consumer dispute.

Here’s the cool part: the process category model fundamentally changes from a litigation-based approach to one which assigns party liability: who has liability for the chargeback itself—the merchant or the issuing bank? The other cool part includes a new service Visa offers for merchant processors who want to directly integrate. It’s called Visa Merchant Purchase Inquiry. Using this service your merchant processor can have immediate and direct access to a consumer dispute before a chargeback actually occurs, much like a retrieval request. This could prevent a chargeback altogether, and could be a game changer.

As an ecommerce merchant what should you be doing today? First, you should do a comprehensive audit of your internal business processes surrounding your fraud strategy. You need to ensure you have the compelling evidence necessary for a proper response. Do you have shipping confirmation? Do you have bill to and ship to information? Most often chargeback handling falls on the shoulders of your finance team. You may need to re-train your teams if you want to avoid penalties associated with a non-response. Also, because of the liability assignment approach, the process for submitting a compelling evidence packet changes. These are a few things for you think about.

As it ends up, both VHS and Betamax are now history—you may be too if you don’t convert!

If you would like help with chargebacks, or to explore your ecommerce fraud strategy, feel free to drop us a line at

What Is Friendly Fraud?

31 May


Retailers are long familiar with physical shoplifting, but as commerce shifts online, many are not nearly as familiar with a new type of fraud—Friendly Fraud, something akin to shoplifting, but perpetrated online…

Friendly Fraud, frequently referred to as illegitimate chargebacks, are a big problem for e-commerce, costing retailers over $12B annually (as reported by Visa). The FBI reports Friendly Fraud as one of the top risks to Global e-commerce. This fraud destroys a retailers’ margin and can even put a retailer out of business. Why does this happen and what can you do about it?

Like many things in life, when there is a loophole, humans will find a way to exploit it. The loophole here includes the lack of signature on the credit card transaction. With card-not-present (CNP) transactions it’s easy for a customer to call their bank and claim they did not receive the merchandise. Because there was no signature to prove or disprove this claim, customers often get away with this scheme. With today’s “The Customer is Always Right” mentality, most retailers take the customer’s account as the final word and never challenge the chargeback—but they should.

LexisNexis Risk Solutions reported fraud losses as a percentage of the retailers’ online revenue increasing from 0.68% in 2014 to 1.47% in 2016. This represents a staggering increase in fraud, and hurts their bottom line in a significant way. This can be deadly when coupled with the overall decrease in margin being seen by many online retailers. Approximately 80% of all chargebacks are Friendly Fraud. We find in better than 60% of these cases the customer never even contacts the retailer, so it’s not a failure on the retailer but purposeful fraud by the customer. Customers somehow feel this fraud is not quite the same as stealing from the retailer—but it is. Our advice is to challenge all Friendly Fraud chargeback cases.

Most retailers do not fight Friendly Fraud because they do not understand the process or feel it’s too expensive and time consuming. The most challenging part of Friendly Fraud is the human element—it’s very difficult to predict human behavior. You really have no idea who is doing it, for what reason, nor when it’s coming. But once you begin, you will see patterns. By challenging each Friendly Fraud case you will also send a strong signal to your customers that you will not tolerate this type of abuse. Customers commonly share on social media which retailers fight Friendly Fraud and which ones do not. Do not accept Friendly Fraud as a cost of doing business. There is no time like the present to begin challenging these cases.

If you would like help combating Friendly Fraud, feel free to drop us a line at