Breaking Down the Latest from Visa and Mastercard

Visa and Mastercard are shuffling the deck in 2019, impacting the way business is done in the world of payments.  Starting this month, Mastercard is requiring more transparency for free trials associated with physical products such as skin care or other healthcare items.  Visa recently announced lower chargeback thresholds, to take effect this coming October.  Both initiatives focus on reducing chargebacks, a goal we can all get behind.  So, rather than panic over the changes, take a closer look and you’ll realize the odds are stacked in your favor.  

Segpay recently underwent a Mastercard Global Risk Review and gained some insight on the card brand’s new rule governing free trials.  Mastercard says it rolled out the rule to go after deceptive practices specifically around physical goods in the health and “nutra” space.  Starting this month, merchants offering these types of products will be required to notify a consumer, either by email or text message, when a free trial period ends and when a regular subscription is about to begin billing.  The notification must include: the amount to be billed, the payment date, the merchant name and detailed instructions on how to cancel.  Also, before automatic billing can begin, the merchant must obtain the cardholder’s explicit approval.  While free trial offers are helpful in increasing sales and improving customer satisfaction, the changes will help increase transparency and eliminate disputes from cardholders who weren’t clear about what they were buying.  

While the rule applies to physical goods only; it is certainly possible it could extend to the digital space in the future.  So, let’s make sure Mastercard doesn’t have reason to do that.  It’s on us to keep the digital space as clean and as transparent as possible.  For now, only Mastercard is implementing this rule but it’s a safe bet that Visa could follow.  In the long run, increased transparency is a win-win for everyone: great for consumer protection while reducing chargebacks. 

Speaking of chargebacks, Visa is about to get stricter.  Starting October 1st, 2019, allowable sales-to-chargeback ratios will be lowered under Visa’s Chargeback Monitoring Program (VCMP) and Acquirer Monitoring Program (VAMP).  Both are compliance efforts that help merchants and acquiring banks keep dispute and fraud activity to a minimum.  Here’s how it breaks down; the VCMP applies to merchants and currently allows for 100 chargebacks per month- this will stay the same but the maximum sales-to-chargebacks ratio drops from 1% to 0.9%.  The VAMP, which applies to acquiring bank portfolios currently allows for 750 total chargebacks per month.  This will also stay the same but the maximum sales-to chargeback ratio falls from 1% to 0.75%.

While rules are getting stricter, the tools we can use to fight chargebacks are stronger than ever.  Visa is rolling out its Visa Merchant Purchase Inquiry (VMPI) which gives merchants the ability to respond to cardholder inquiries around unrecognized transactions and other potential disputes by providing relevant supplemental merchant information in real time.  This will allow Segpay and other processors supporting VMPI to respond to a bank inquiry almost immediately, ensuring it does not become a chargeback.   

Another tool in the fight against chargebacks is 3-D Secure.  Segpay merchants already benefit from 3-D Secure, and later this year we’ll begin supporting version 2.0.  The latest version enables a real-time, secure, information-sharing pipeline that merchants can use to send an unprecedented number of transaction attributes that an issuer can use to authenticate customers more accurately, without asking for a static password or slowing down ecommerce.  

That the bar continues to be raised when it comes to allowable chargebacks is a testament to how far we’ve come in the payments industry over the last 20 years.  When I started in this business the allowable chargeback ratio was 5%.  In recent years, it has steadily been brought down to 2% and then ultimately to 1% globally as of January of 2016.  All these changes and compliance efforts benefit both merchants and acquirers by keeping dispute and fraud activity down to a minimum.  If you have questions or need help, please reach out to us via compliance@segpay.

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