What In The World Is Visa Fraud Monitoring Program? Can You Avoid It?

Like the Visa Dispute Monitoring Program (VDMP), Visa Fraud Monitoring Program (VFMP) is an aspect of Visa’s fiduciary responsibility to its stakeholders. VFMP tracks merchants that get excessive fraud cases. But it’s not as exciting as you’d think, and merchants must avoid the VFMP god’s eye at all costs.

Visa tracks every vendor’s dispute activity to help curtail different forms of fraud risks and promote the use of fraud controls. If a vendor reaches Visa’s excessive fraud and disputes threshold, Visa will notify the acquirer. The acquirer is a financial institution that accepts and processes credit and debit card transactions on behalf of the vendor. With that notification, Visa will effectively place the vendor in VFMP to reduce disputes.

Below are the three stages of the Visa Fraud Monitoring Program:

1. Warning Stage: As the name suggests, the early warming stage prompts you to take action to find the causes of the rising fraud levels. No fines are applied here since you’ve not violated any rules.
2. Standard Stage: At the standard VFMP stage, Visa gives you a four-month window to get your fraud issues under control.
3. Excessive Stage: This final stage is for vendors that breach the excessive Visa fraud threshold. Visa automatically places vendors in a high-risk Merchant Category Code (MCC) in this bracket.

Your Visa fraud rate—“the dollar value of the transactions you lost to fraud over the specified month, relative to total transaction value from the same period”—determines where you fall in the strata. NOBODY wants to enter the VFMP, and we will discuss why shortly.

Exposé on Visa Fraud Monitoring Program (VFMP)

Visa has developed two categories of fraud monitoring programs to keep fraud as low as possible:

1. Visa Fraud Monitoring Program (VFMP)
2. Visa Fraud Monitoring Program - 3D Secure (VFMP-3DS)

The former is for everyone worldwide, while the latter is for only US merchants.

Visa reviews merchant accounts monthly (ideally at the beginning of each month) and automatically enrolls those failing to comply with the VFMP standards into the 12-month program. Domestic and cross-border activity counts towards monthly totals for US, Europe, Canada, Australia, and Brazil users. Visa only considers cross-border transactions for merchants in other regions.

Formula For Calculating Visa Fraud Rates

Visa calculates the threshold for your account based on the fraud amount and ratio. In other words, the formula for calculating your fraud-to-sales rate is the sum of all fraud reports (a.k.a TC40 reports) received in the current month divided by monthly sales volume. For example, assuming you received 100 fraud reports from 10,000 transactions in January, your fraud-to-sales ratio or fraud rate will be determined as follows: 100/10000x100 = 1%.

Likewise, to figure out a merchant's Visa Fraud Monitoring Program - 3D Secure fraud ratio, Visa uses this formula: The USD amount of fraud reported on 3D Secure transactions in the current month divided by the sales amount processed through 3DS in the same month.

The level of penalty you will receive depends on the outcome of the above calculation, which is the number of months your account has exceeded the established thresholds. For instance, exceeding thresholds for the first time becomes your identification Month 1; the second time becomes your identification Month 2.

Understanding Visa Fraud Monitoring Program Thresholds

On October 1, 2019, Visa switched gears on its fraud mitigation processes by revising the threshold of the VFMP, which has stood for a long time. The table below shows the new risk thresholds they established to monitor vendors' transactions.

Visa Fraud Monitoring Program - 3D Secure (VFMP-3DS) has only the early warning and standard classifications.

The standard Visa Fraud Monitoring Program enforcement period is eight months. Although Visa does not place fines on vendors for standard VFMP, you don’t enjoy the fraud liability protection privileges. Visa automatically assigns you liability for fraud-related disputes. More so, excessive fraud merchants have a 12-month program in the VFMP, which attracts costly non-compliance fees each month they breach the acceptable threshold.

In essence, Visa believes your margin of error in avoiding fraudulent transactions is now intolerable by moving you into the excessive fraud bracket. But the good news is Visa tracks only the first ten fraudulent transactions or ten chargebacks (for VDMP) from a specific cardholder. If a scammer uses one card to run twenty attacks on your business in one month, Visa will only consider ten transactions.

What are the Consequences of Breaching Visa Fraud Monitoring  Program Thresholds?

Crossing the VFMP threshold will raise your operational costs exponentially. And it could also kill your business. For example, excessive fraud merchants get expensive non-compliance fees for every month they breach the acceptable threshold as follows:

You can only exit the Visa Fraud Monitoring Program after maintaining your fraud rate below the established threshold for three consecutive months. If you successfully navigate through two months and then breach the threshold again, Visa will take you back to square one.

Further, you can only be transferred from a standard VFMP to an excessive-risk VFMP, not vice versa. Visa does not reclassify a vendor from the excessive risk monitoring program to the standard monitoring program, irrespective of their fraud resolution progress.

NOTE: Besides Visa, other parties are involved in chargeback and fraud mediation processes. Whenever a client or their bank files a transaction dispute, Visa first overturns the transaction from your acquirer. Your bank will then withdraw the transaction value from your account to compensate for its loss.

Even though banks know there are unavoidable chargebacks and fraud cases, acquirers and processors often see vendors that get excessive disputes as high risks. They’d instead drop such vendors, freezing or canceling their accounts before they even breach thresholds.

Without an active merchant account, there’s no way you can process card payments. And you cannot receive new transactions or withdraw available funds either. As one payments expert noted, “They feel you can’t handle your persistent issue of fraud, and by that, do not deserve the benefit of the doubt when a customer claims criminal fraud."

Here's more: If you fail to remedy the situation, Visa can block you from accepting Visa Payments altogether and permanently ban you from their network, which is a probable nail in the coffin for your business. Hence, you must take every precautionary measure in the book to reduce your fraud exposure risks and avoid VFMP.

How to Avoid the Visa Fraud Monitoring Program

The average eCommerce merchant in the United States deals with over 1,200 monthly fraud attacks. Being one of the defacto card networks, Visa is not lenient on fraud cases. Failure to lower your fraud rate means losing access to the platform. Therefore, avoiding the Visa Fraud Monitoring Program should be a priority for your team.

Below are some recommendations to help you get started:

Get an Education on Online Fraud

If you don’t know what constitutes fraud, you will always be their prey. Do you know how to recognize suspicious email addresses? Are you conversant with order anomalies, fraud pattern recognition techniques, and the latest developments in the industry? Do you have active SSL certificates and tools to block potentially fraudulent accounts from accessing your eCommerce store? You can’t safeguard your business effectively if you don’t know how to spot and stop fraud.

Review Flagged Transactions Manually

Manually reviewing transactions is daunting, considering the volume of work a merchant must do to get your business going. However, pairing a digital assessment with a manual review helps increase better judgment. If you receive a transaction from a suspicious IP address that seems potentially fraudulent, you might panic and block all subsequent transactions. However, it's vital to remember that not all transactions flagged as doubtful by fraud detection software are actually fraudulent. In fact, most of these flagged transactions could be legitimate. That's why merchants using Chargeflow's dispute and fraud automation service are getting an unbelievable value for money as the system pairs its powerful analytics with human intelligence to maximize outcomes.

Get Support from Fraud Experts

Digital fraud is highly sophisticated these days. If you don't have the budget to build sophisticated, high-tech fraud detection mechanisms, you will most likely fall prey to their tricks every time. And even if you have a team of quick-eyed analysts to sift out every fraudulent transaction, it's an expensive task. It makes more business sense to get dedicated external support with reliable tools like Chargeflow.

Chargeflow’s highly sophisticated, industry-first Fraud Scoring Technique can help you score transactions based on your requirements. You can quickly categorize transactions based on industry standards, recurrent fraud issues, client zones, etc.

Learn how Chargeflow can help you build a brand that nourishes the world without the risk of fraud hampering your growth prospects.