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Rules aren’t just rules. In the commerce game, rules are laws.
These laws apply particularly to consumer credit protection.
The laws are strict. They are specific. All the issuers and acquirers must obey them. For this reason, credit networks such as Visa, MasterCard, AMEX, and Discover impose rules on you according to the laws they must follow.
Visa chargeback rules are no different. If you fail to observe Visa’s rules, you face fines, loss of revenue, higher processing fees, and possibly the inability to accept credit card payments.
Here are Visa’s rules and how they apply to you, the merchant.
Where do Visa chargeback rules come from?
Almost every country now has credit cards.
Credit cards originated in the United States in the 1950s. Modern credit cards, with magnetic stripes and microprocessor chips, are integrated into the global financial systems.
The problem is that every country has its own laws. US, UK, Canada, India, Australia, Japan, South Africa, and Brazil—plus dozens more—enact their own consumer protection laws to ensure security and privacy.
Credit networks such as Visa must monitor and manage their own products despite the wide variety of international laws and policies.
One crucial process that emerged from this situation is the chargeback.
What is a Visa chargeback?
A chargeback is a process. It is initiated by a credit card holder with their card issuer, like Visa, to dispute a transaction. Sometimes, the cardholder can secure a refund for a purchase made with the credit card. A chargeback is considered a form of consumer protection.
A chargeback is a straightforward concept. It is fair and reasonable.
But how does Visa implement it?
The Visa chargeback process
There are four components to the Visa chargeback process.
- Dispute initiation
- Bank investigation
- Merchant notification
- Resolution
However, each component has several steps, making it a bit difficult to follow.
I’ll do my best to make the process clear.
Let’s go through each step in order, looking at time limits, fees, and other considerations along the way.
NOTE: Fees, time limits, and other rules associated with the Visa chargeback process can vary depending on several factors, including the policies of the issuing and acquiring banks, the specifics of the transaction, and the nature of the chargeback itself, including the specific reason code.
1. Dispute initiation
A credit card transaction can be disputed if a cardholder feels victimised by fraudulent charges, goods or services not received, goods or services not as described, or unauthorised transactions.
The cardholder initiates the dispute with the bank that issued the credit card (the issuing bank).
Important: The dispute is not initiated through Visa. Visa is a global funds transfer processing network, not a credit card issuer.
The cardholder (or issuing bank on behalf of the cardholder) must identify the appropriate reason code when initiating a dispute.**
Visa chargeback reason codes
Visa has established a comprehensive set of reason codes for chargebacks. These numerical codes categorise the nature of the dispute.
The four categories are:
- 10.x Fraud
- 11.x Authorisation
- 12.x Processing errors
- 13.x Consumer disputes
Time limits
There are specific time limits for initiating a chargeback. Generally, cardholders must file a dispute within 120 days from the transaction date. Alternatively, they have 120 days from when they expect to receive the goods or services.
Cardholder fees
Typically, no fees are charged to the cardholder for initiating a chargeback.
Documentation and communication
Before proceeding with a chargeback, the cardholder must usually attempt to resolve the dispute with the merchant. The documentation may involve proof of this attempt and any other relevant communications supporting their claim.
2. Bank investigation
Issuing bank investigation
After dispute initiation, the bank investigates the cardholder’s claim. They review the transaction details, the reason for the dispute, and any supporting documentation the cardholder provides.
Chargeback initiation
If the issuing bank finds the dispute valid, it initiates a chargeback. This action reverses the transaction, temporarily crediting the cardholder's account while debiting the merchant's account. The bank also assigns a specific reason code to the chargeback, indicating the nature of the dispute.
Merchant fees
The merchant loses the amount of the chargeback, plus any penalties.
Notification to the acquiring bank
The chargeback is then communicated to the acquiring bank, which is responsible for processing transactions for the merchant. This notification includes details of the dispute and the reason code.
Merchant fees
Merchants may incur fees from their acquiring bank when a chargeback is initiated. These fees are to cover administrative costs associated with processing the chargeback.
3. Merchant notification
The acquiring bank notifies the merchant of the chargeback. The merchant must now respond to the claim. They can submit evidence to dispute it, such as proof of delivery or service, transaction records, or correspondence with the customer.
Time limits
After receiving a chargeback, the merchant has a limited time to respond if they wish to contest it. This is usually 30 days from the date they receive the chargeback notification.
Merchant fees
The merchant's bank may also charge the merchant additional fees related to the investigation and processing of the chargeback.
4. Resolution
Several steps comprise the resolution phase of the chargeback process.
Timing
Timing varies for each step of the resolution process and is noted in the appropriate descriptions below.
Chargeback fees
If the chargeback is upheld against the merchant, the merchant may be responsible for the chargeback amount plus additional chargeback fees. These fees can vary and may be higher for merchants with high chargeback rates.
Acquiring bank's forwarding of evidence
The acquiring bank must promptly review and forward the merchant’s evidence to the issuing bank. This should typically be done within a few days of receiving the proof from the merchant.
Issuing bank's review of evidence
The issuing bank then reviews the submitted evidence. This review process should be completed within a reasonable time, often within 30 days.
Second presentment or pre-arbitration
The pre-arbitration, or second presentment, phase begins If the merchant disagrees with the initial resolution. The dispute now escalates. Each step also has specific time limits, usually within a few weeks of the decision.
Final decision and closure
The final decision is reached after the first or second presentment or following arbitration. The decision must be communicated to all parties, and the case must promptly close.
Visa arbitration
If the case goes to arbitration, Visa sets a timeframe for both parties to submit final arguments and evidence. Following submission, Visa aims to provide a resolution within a specified period, up to 60 days.
Implementation of the decision
Once a decision is made, the cardholder’s and merchant’s respective bank accounts are adjusted accordingly. This should be done promptly after the decision is communicated.
Visa chargeback rules' impact on merchants
Chargebacks can have a significant impact on merchants. Not only can they lose revenue from the reversed transaction, but they may also incur additional fees and, if they have a high rate of chargebacks, could face higher processing fees or even lose their ability to accept credit card payments.
As I said, serious stuff.
Moving forward
Avoiding chargebacks in the first place is the ideal solution to suffering the pain of the chargeback process.
ChargebackStop.com provides automated chargeback prevention. Our platform helps you deal with chargebacks, especially as you scale and begin accepting more payments. ChargebackStop gives you the control you need to regain up to 5% of your revenue.
Visit ChargebackStop.com for answers to your chargeback questions. You can also sign up for a free demo. We’re here to help you scale your business effectively.
FAQ: Visa Chargeback Rules
How can merchants minimise the risk of chargebacks?
Merchants can minimise chargebacks by providing clear product descriptions, maintaining good customer service, using fraud and chargeback prevention tools such as ChargebackStop.com, providing clear billing descriptors, and promptly addressing customer disputes.
What are the time limits for initiating a Visa chargeback?
Cardholders typically have up to 120 days from the transaction date or when they discover a problem to initiate a chargeback. However, this can vary based on the chargeback reason.
Can a merchant contest a chargeback?
Yes, merchants can contest a chargeback by providing evidence such as proof of delivery or service, and contesting must typically be done within 30 days of receiving the chargeback notice.