Chargebacks have always been a big issue for payment processors, which is why Visa has a strict program in place to help tame the vice. Be prepared for even tougher times. With chargeback rates on the rise, Visa, in their latest update to the chargeback program, is adding an even stricter layer of rules to curb the trend.
First, it’s important to understand where exactly we’re coming from. At the beginning of this year, and for the many years before that, online merchants were not allowed to report more than 100 chargebacks in a month. Also, the chargebacks were not supposed to account for more than one percent of your sales.
If both of these happened, you would be put on a Visa Monitoring Program. Merchants on the monitoring program have to show Visa a plan for getting their high chargeback numbers back down, while facing fines and extra fees. But that is just the start. If after 90 days your numbers were still high, you can be declared “high risk” and risk losing your merchant account.
Pay special attention to the “both” in the above rule. You have to breach both regulations to face punishment. In other words, you can get away with more than 100 chargebacks in a month as long as the chargebacks don’t constitute more than one percent of your sales. You are also safe if the chargebacks account for over one percent of your sales but don’t exceed 100 in number.
The New Rules are Tighter
In addition to the Monitoring Program, Visa has introduced a new Pre-monitoring Program. The pre-monitoring program has a threshold of 75 chargebacks and 0.75 percent. If you hit this threshold, you will get a stern warning, although there will be no fines and fees yet.
What’s the big deal? One would ask.
The answer is simple. Currently, the average chargeback rate for online merchants is 0.85 percent. This means that the average merchant would have escaped the earlier one percent rule. But with the limit dropping to 0.75 percent, a 0.85 percent chargeback rate would get you in the bad books of Visa. In other words, average performance is no longer good enough.
What’s more, Visa’s U.S. and European operations are scheduled to merge soon. Currently, European Visa has a threshold of 150 chargebacks and 1.5 percent for one to get in trouble. When the merger finally happens, it is expected that European merchants may have to adjust to the new stricter rules of U.S. Visa.