Will the Visa/Mastercard VCR/MDRI rules be a Game-changer for Chargebacks?

Card fraud and disputes have been rising at an alarming rate in the past few years. Analysis by The Chargeback 911 Company shows that friendly fraud has increased 41% over the past two years, and now represents 60%-80% of all disputes. At the current rate, friendly fraud will cost merchants more than $25 billion a year by the year 2020.

It is clear from these numbers that fraudulent chargebacks and disputes have the potential to hit merchants hard. Keeping this in mind, card associations finally took measures to address the problem of fraudulent chargebacks by overhauling the outdated claims resolution systems.

What is Visa Claims Resolution (VCR)?

The first step was taken by Visa when it rolled out its new claims resolution initiative (VCR) in April 2018. The aim of the initiative was to streamline the chargeback process, reduce instances of chargeback fraud, and standardize the system for processing claims. It brought in a more proactive dispute process along with better governance and monitoring.

VCR aims to transform the legacy litigation-based system into a liability-based one. This means that though litigation has not disappeared, VCR would now use existing data and automation to assign liability. Automation is being used to detect invalid cases and hence lower the number of complaints that actually move on to the litigation phase.

According to a survey of hundreds of merchants by the Chargeback Gurus, 78% of merchants saw fewer chargebacks under the new VCR process, 18% reported increases in chargebacks and 4% reported that they saw no impact on chargebacks. (Source: ‘Visa Claims Resolution: The Impact of VCR on eCommerce and Card Not Present Merchants’)

Additionally, it was observed that 32% of merchants were fighting chargebacks prior to the VCR update, while 17% of the merchants are now fighting chargebacks. However, 51% of the merchants still do not fight chargebacks due to the manpower needed and the stringent mandates that need to be followed to dispute a case. While VCR promises a more efficient dispute process for both merchants and financial institutions, some of the major challenges that merchants reported from VCR include:

• Increase in the time required to dispute chargebacks
• Winning fewer chargeback disputes after VCR
  
  

It would seem that the merchants’ response to VCR has been mixed and it is yet to achieve its real impact.

MasterCard Dispute Resolution Initiative (MDRI)

Later, in October 2018, Mastercard released its Mastercard Dispute Resolution Initiative, a new set of rules-based chargeback policies for MasterCard network members.  Much like VCR, the aim of MDRI is to simplify the entire chargeback process and make it more streamlined. MDRI is being rolled out in four phases from October 2018 through April 2020. The main theme of MDRI rules seems to be to try and bring in more responsibility on issuing banks than before.

Like Visa, Mastercard also seeks to modernize archaic chargeback processes and make policies more aligned to the demands of the digital market. However, whether MDRI will work or not is harder to say, as it is still being adopted.

MDRI does introduce measures to help merchants deal with fraudulent chargebacks better. But only time will tell whether the new rules have delivered on their promise of a fair and transparent chargeback process or not. So, let’s wait and watch.

As the payments landscape changes, both Visa and Mastercard, through their respective VCR and MDRI initiatives, seek to make the chargeback/ disputes process simpler and reduce the cost and effort burden on merchants and other players in the payment chain. The jury may still be out on whether these newer rules have had an overall positive effect on the process, but at least there is an attempt to make a positive change in this highly competitive space.

We, at Coforge BPS, have been following the impact on disputes processing and chargebacks and helping our customers navigate the changes brought about by these new rules. Our Disputes Center of Excellence has helped customers achieve 60% faster turn time in dispute processing, and at 45% lower cost. To know more, contact us at CoforgeBPS@coforge.com.