Visa Chargeback Guide: Reason Codes & Fraud Monitoring

A common challenge for eCommerce merchants is chargebacks, this is especially true when the dispute arises through Visa’s network. Visa plays a pivotal role in investigating cardholder complaints and escalating them to chargebacks when necessary. However, with the right approach, you can leverage Visa’s guidelines to help address disputes, and if warranted, reverse chargebacks effectively.

In many cases, Visa will notify you regarding a cardholder dispute, as part of the Visa chargeback process. When a chargeback happens, Visa allocates a reason code explaining the reason for the chargeback, but that’s not all. Through the chargeback reason code, you will know how to best dispute the chargeback and which transaction documents you need.

Our goal today is to get you up to speed with how to use the reason codes, which are central to Visa’s guidelines for handling disputes and the best practices to avoid chargebacks. The latter is crucial, as it will keep you away from the Visa Fraud Monitoring program, which we will discuss subsequently.

Visa Chargeback Reason Codes

The fastest way to resolve a chargeback is to look at the reason code. That is because the Visa chargeback reason codes provide the primary reasons why Visa made the chargebacks.

These codes are often numeric, which leads us to how Visa categorizes its chargeback. The Visa reason codes come in decimals. With this format, Visa uses the whole number to describe the main category, while the decimal points to the exact reason for the chargeback. 

Visa uses the reason codes based on the specific cardholder dispute that caused the chargeback. For the causes, the common ones we have include:

• Duplicate transactions
• Cases where the cardholder did not receive the merchandise
• Cases where the delivered goods were defective or not as described
• Cases where the cardholder canceled the transaction but was still charged

Chargebacks typically occur on card-present and card-not-present transactions. The latter refers to online transactions that do not involve physical card swiping.

For the chargeback categories, the Visa chargeback guide has the following: fraud, processing errors, cardholder disputes, and authorization issues. Fraud involves cases where the card was used but the cardholder disputes not making the transaction. Chargebacks under this category should be handled with prevention in view, as they often lead to the Visa Fraud Monitoring Program.

Processing errors include mistakes from the merchant’s end, while authorization issues cover cases where you did not obtain adequate authorization for a transaction.

The way out of any chargeback is to understand the reason code, how it relates to the cause, and the steps to reverse the chargeback. With that said, here are a few common reason codes and how to address them:

• 13.1: Here, the chargeback happens because the cardholder has complained about not receiving the merchandise or service paid for. The way to address this is to provide evidence that the cardholder received the merchandise or service.
• 10.4: Chargebacks under this code occur when a cardholder claims an unauthorized transaction occurred where their card was not physically used. To dispute it, you’ll need evidence that you employed adequate verification measures before processing the transaction.

The Visa Fraud Monitoring Program

Our top recommendation is to have as few chargebacks as possible. Having too many of them can push you into the Visa monitoring programs with penalties. These programs are the Visa Fraud Monitoring Program (VFMP) and the Visa Dispute Monitoring Program (VDMP).

The Visa Fraud Monitoring Program is a program that identifies merchants with excessive fraud-related chargebacks. It monitors the chargeback rate, which compares the fraud cases to your total transactions within a month. In other words, merchants will join the program if they incur a high fraud-related chargeback rate. Visa provides guidelines on best practices for identifying and managing risk in today’s payment ecosystem to help merchants stay compliant.

Pay utmost attention to fraud but still keep an eye out on other chargebacks. That is because the Visa Dispute Monitoring Program also monitors your chargeback rate, but this time for other chargeback categories. Together, the VFMP and the VDMP help keep merchants in check to offer better service to customers.

Merchants do not join the VFMP out of the blue with a few fraud-related chargebacks. Even before Visa finally enrolls them, they’ll receive adequate warnings. These warnings occur at a specific threshold, precisely the early warning threshold.

The early warning threshold considers the fraud amount and the chargeback rate. If the fraud-related chargebacks continue increasing, you will move up to the standard threshold. Above that, we have the excessive threshold, which can result in a merchant losing the ability to accept Visa card payments.

You will face no fines at the early warning threshold. Merchants at this level likely have a 0.65% chargeback rate and at least 75 fraud-related disputes. Move above that to the standard threshold, and you will be charged $50 per dispute after the first four months. The excessive threshold applies the $50 charge immediately.

Things begin to get turbulent for your business if you stay in the program for up to ten months. The penalties might include up to a $25,000 review fee and audits.

Lowering your chargeback rate is the only way to exit the program. To do that, you can do the following:

• Adopt new and advanced fraud detection tools and software
• Verify customer information, especially for card-not-present transactions (AVS and CVV/CVC)
• Monitor transactions for suspicious or out-of-place patterns
• Resolve issues proactively before they get to chargeback levels

Best Practices for Handling Visa Chargebacks

Getting acquainted with the chargeback reason code list is one way to resolve chargebacks quickly. However, we will advise you to do all you can to prevent chargebacks from happening. That means eliminating merchant or processing errors and improving customer relations to resolve disputes before they get to the card network, in this case, Visa.

From the Visa chargeback guide, we’ve selected the best practices you can start now to handle chargebacks. They include the following:

• Monitoring transactions: One way of recognizing fraudulent transactions is to review the amounts a customer typically pays for your merchandise and services and highlight transactions that break that pattern. You can do that, but most importantly, add fraud detection tools for a more robust approach. These tools can detect patterns faster and even use machine learning and AI to pick out fraudulent transactions.
• Keeping good records: With adequate records for your transactions, you can clarify issues during customer disputes. For example, in a dispute for a canceled transaction, you can provide evidence to show that the customer canceled outside of the timeframe you allowed for cancellations.

Besides transaction records, you should keep a record of your goods and services before, during, and after delivery. This record should contain an adequate description of your goods and services. More often than not, customers dispute transactions when the goods and services do not match their expectations. Such disputes can result in chargebacks.

• Responding quickly: Although not always the case, customers typically reach out to merchants before taking their disputes to the issuing bank. When that happens, you have the chance to sort things out before they escalate to a chargeback. However, you must be quick with your response.

Even if you can’t provide a detailed response immediately, ensure you contact the customer and assure them that you are looking into the complaint. At that time, provide a time frame when they should expect a full response.

Provide communication channels for your customers. Today, we have live chat, emails, telephone support, and walk-in services. We advise you to include multiple channels to cater to different customer preferences.

• Leveraging chargeback management tools: When the chargeback finally happens, a speedy response can be crucial in deescalating the situation. We understand how busy you can be, hence the need for automation. Consider using chargeback management tools like Chargeflow to gather evidence quickly, automate your response, and stay compliant with Visa’s requirements.

When dealing with chargebacks, whether from credit cards or prepaid cards, you should consider the issuing bank as much as you consider Visa. That is because the issuing bank might have its own unique requirements for the dispute process.

Conclusion

In summary, the Visa chargeback guide provides the needed direction for you to deal with chargebacks through its reason codes. You can use the codes to quickly tell why chargebacks occur and which evidence will serve you best when disputing them. Nevertheless, the most essential takeaway from the Visa chargeback guide should be about preventing chargebacks.

We recommend the chargeback guide, but even more importantly, you should pay attention to the Visa Fraud Monitoring Program. The latter should be a pointer for you to keep your chargeback rates low and avoid penalties or delisting from Visa card payments.

We’ve recommended a few best practices, including using chargeback management tools, responding to customer complaints quickly, and monitoring transactions. These practices will help you avoid fraud and disputes that result in monitoring programs like VFMP and VDMP. Finally, ensure you implement these practices to safeguard your revenue, keep chargebacks low, and protect your business reputation.