On October 1, 2019, Visa changed their threshold levels on their two monitoring programs, the Visa Dispute Monitoring Program (VDMP) and the Visa Fraud Monitoring Program (VFMP), and it has had a major effect on merchants of all kinds when it comes handling chargebacks and fraud.
They also changed the name of one of their programs: The VDMP used to be called the Visa Chargeback Monitoring Program.
What the changes meant (and still mean) to merchants is that if you get placed on either or both of these programs, you’re going to be charged a lot more money than you previously were as Visa more closely monitors your merchant account for increased fraud and chargebacks.
Understand your chargeback ratio and fraud ratio
There are two numbers you need to understand on your merchant account to know how these affect you, the chargeback ratio (or chargeback-to-transaction ratio) and your fraud rate.
The chargeback ratio measures the number of transactions you’ve made that resulted in chargebacks. To determine your chargeback rate, Visa divides the number of chargebacks in a single month by the total number of transactions in that same month.
Your fraud rate is just the dollar amount of fraudulent transactions.
Of course, Visa expects a number of chargebacks and fraudulent transactions to just happen. They’re inescapable, but that doesn’t mean Visa just accepts them. They still do their part to prevent them both, and they expect their merchants to do so as well.
Since low-risk and high-risk have different types of businesses, and they process different numbers of transactions (high-risk usually processes more than $20,000/month in sales volume), they have different thresholds for both low-risk and high-risk merchants.
Whether you’re a low-risk or high-risk merchant, you could be placed in either of these programs if you meet any of the following qualifications.
VDMP: Low-risk merchants could be placed in the program if they:
- Make 100+ disputed transactions per month and have a dispute-to-transaction (DTR) ratio of .9%.
- For high-risk merchants, it’s 1,000+ disputed transactions per month and a 1.8% DTR.
- Low-risk merchants will be placed into their Early Warning system when their DTR is .65% and they have 75 disputed transactions.
- And low-risk merchants will be placed on VDMP Excessive status if they have a 1.8% chargeback ratio and have 1,000 chargebacks.
VFMP: Low-risk merchants could be placed in the VDMP program if they:
- Process $75,000+ in fraudulent transactions and have a fraud-to-sales (FTS) ratio of .9%.
- High-risk merchants have a threshold of $250,000 in fraudulent transactions and a 1.8% FTS ratio.
- Low-risk merchants will also be placed into the Early Warning system when their FTS is .65% of sales and they process $50,000 in fraudulent transactions.
- And low-risk merchants will be placed on VFMP Excessive status if they have an FTS of 1.8% and $250,000 in fraudulent sales.
What Happens if You’re Placed in the VDMP or VFMP?
If you violate any of the fraud or chargeback thresholds, you will most likely be enrolled in either the VFMP or VDMP. And it’s possible you could be enrolled in one and not the other, depending on your different issues, or you could even be enrolled in both.
The point of the programs is to help you manage your fraud and chargeback risks, but the extra fees mean it also helps Visa make back the money they’ve lost due to fraud and managing chargebacks.
As you saw above, there are standard and excessive levels based on your levels of violation.
The standard VDMP enforcement period lasts for eight months. In the first three months, you’ll be fined $50 for every dispute or chargeback filed against you. (Technically, they will fine your acquiring bank or processor, who will then deduct that from your account.)
But excessive VDMP enforcement period lasts for 12 months, and you’ll be hit with a $100-per-dispute fee.
Finally, with either program, you may be forced to pay a $25,000 review fee near the end of the enforcement period.
The VFMP plan is similar. In the standard VFMP, the enforcement period is eight months. And while there are no per-fraudulent-transaction fines, you won’t get the fraud liability protection from Visa’s 3-D Secure solution. That means, you’re more likely to experience further fraud, which will be expensive since you will automatically be assigned the liability for any fraud-related disputes. That is, even if you were completely tricked, you’re still on the hook for the costs.
It’s easier than you think to breach the VDMP and VFMP thresholds, and you could end up paying a lot more to cover the ensuing errors. So if you’re already running on thin margins, they’re about to get a lot thinner.
But you can help reduce your chances of chargebacks and fraud with CB-ALERT, a third-party solution that helps detect malicious fraud and friendly fraud before it even starts. We can identify patterns of friendly fraud and malicious fraud and save you from possible problems. Using a third-party chargeback management solution like CB-ALERT can reduce chargebacks by as much as 19%.
If you want to learn more about reducing chargebacks and fighting fraud to avoid the VFMP and VDMP, CB-ALERT can help. To learn more, please visit the CB -ALERT website.
Photo credit: multifacetedgirl (Pixabay, Creative Commons 0)