Visa Dispute Monitoring ProgramBad News for Merchants With Excessive Chargebacks

Visa Dispute Monitoring Program: What is the VDMP, and How Does It Impact Merchants?

If someone is performing a service in your name, it’s your reputation that’s on the line. Under those circumstances, you’d want to keep an eye on things, to make sure your image isn’t being tarnished. That’s the basic idea behind the Visa Dispute Monitoring Program; in effect, it is a means for Visa to protect the integrity of their network.

The VDMP gives Visa a way to help control chargeback activity at the merchant level. Visa can audit merchant outlets and identify businesses generating excessive disputes. Through the program, they can then take action to address the situation.

The program is meant to fulfill multiple functions for Visa: flagging potential bad actors engaged in merchant fraud, helping legitimate merchants manage chargebacks, defending cardholders, and protecting the Visa brand. With VDMP, acquirers can identify merchants who exceed Visa chargeback thresholds and help them find ways to reduce chargebacks. They may also use it to assess fraud controls and review operations.

But, what is the VDMP? What consequences does it carry for merchants, and how can you  and how can you avoid it?

What is the Visa Dispute Monitoring Program?

Visa Dispute Monitoring Program

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The Visa Dispute Monitoring Program, or VDMP, is a compliance program administered by Visa for the purpose of controlling merchant chargeback issuances. If a merchant exceeds the monthly chargeback threshold set by Visa, they will be entered into the program. This will result in punitive fees, operating restrictions, and costly periodic reviews.

In simple terms, you can think of VDMP as a strategy put in place and administered by Visa to manage chargebacks on their network. The goal is ultimately to protect merchants and banks from damage caused by excessive chargebacks. 

With VDMP, Visa is essentially saying that your business has received too many disputes lately. You may then be given a probation period in which to lower your chargeback ratio. Failure to do so will result in monthly fines, plus additional fees, operating restrictions, and costly periodic reviews.

If your business exceeds the monthly chargeback threshold, you could be entered into the program at Visa’s discretion. This assessment is based on your chargeback ratio, or the number of chargebacks filed against you compared to total transactions.

What Are the VDMP Program Thresholds?

There are three tiers of the VDMP. The program tier that applies to you is based on your chargeback ratio, but is also impacted by the overall number of disputes you received in a given timeframe. Your focus needs to be on keeping both numbers below the Visa chargeback monitoring program thresholds:

Program	Monthly Threshold
VDMP Early Warning	0.65% chargeback ratio and 75 chargebacks
VDMP Standard	0.9% chargeback ratio and 100 chargebacks
VDMP Excessive	1.8% chargeback ratio and 1,000 chargebacks

Each program tier carries different requirements and limitations on your activity. Not surprisingly, the higher the tier, the greater the costs and restrictions:

VDMP Merchant Statuses: Notification, Workout, & Enforcement

Let’s say you’ve passed the Early Warning stage and advanced into the VDMP Standard tier. Now you’ll be dealing with one of three “statuses” that determine the fines and penalties you face:

How to Calculate Your Visa Chargeback Rate

Your chargeback ratio (or “chargeback rate”) is the figure that Visa uses to determine whether you’re compliant with card network chargeback limits. Thus, it’s important that you keep up-to-date information about your chargeback issuances.

Visa and Mastercard calculate your chargeback rate differently. For Visa, you simply divide the number of transactions submitted in the current month by the number of chargebacks issued during the same month.

Just a couple of other things to remember: First, Visa only considers the first ten chargebacks filed per card number, per merchant account. So, if one customer files a bundle of chargebacks all at once, only the first ten will count. Visa will also not count any chargebacks that fall under Visa Reason Code 10.5 (Visa Fraud Monitoring Program).

Consequences of Entering the VDMP

Being moved into the Visa Dispute Monitoring Program can cost you time, revenue, and other resources. You’re normally expected to work with your acquirer to develop a detailed chargeback-reduction strategy, called a chargeback mitigation plan. This plan — which must be presented to Visa — should identify the root cause of your chargeback problem, and also outline an appropriate strategy to correct it.

That doesn’t sound so bad; in fact, it’s likely to have a positive impact on its own. However, it can be difficult to accurately nail down what’s triggering your disputes. Also, the fees and added costs are where the program becomes problematic.

With the Visa VDMP program’s Standard tier, the network will begin fining your acquirer $50 for every dispute filed against you, beginning with the fourth month in the program (the enforcement period). That cost will be passed along to you, potentially with fines from other stakeholders.

For merchants whose chargeback problem is considered “excessive,” (i.e., significantly above the Visa chargeback threshold), the enforcement period is 12 months. There’s no grace period, either: the $50-per-dispute VDMP fine is in effect right from the start. 

In both the Standard and Excessive VDMP, your acquirer will automatically deduct the fees from your account. There may be other associated costs as well. Processors, for example, may increase your regular processing fees until you exit the program.

There are also costly review fees to take into account. With both the regular and the excessive program, you’re subject to a $25,000 review fee toward the end of your enforcement period. Finally, if you’re unable to get your chargeback problem under control by the end of the enforcement period, your bank account may be closed, and you could be blacklisted from getting another merchant account.

How Can I Get Out of the VDMP?

Yes, you can. Despite how it may seem, the point of the Visa Dispute Monitoring Program is not to punish merchants. Rather, it’s to incentivize merchants to not only stop chargebacks from increasing but actually reduce chargeback volume.

You may exit the VDMP if you manage to bring your chargeback rate below the monthly threshold and keep it there for three consecutive months. If you can accomplish this for two months, but then breach the threshold again, you’ll have to start over. But, if you manage to successfully exit the program, you’re free to conduct business as usual, without the added program restrictions.

That said, getting out of the VDMP can be pricey. Visa needs to make sure you’re really in compliance and can stay that way, so they may require a review. As mentioned above, a $25,000 review fee may be assessed toward the end of the enforcement period.

As a part of the VDMP, you’re expected to dedicate substantial effort and resources to get in compliance as quickly as possible. That’s why, if you’re not able to bring your chargeback rate within a compliant range during the 12-month program period, you may be disqualified from the Visa program entirely.

If you’re disqualified, you’d be barred from accepting Visa cards entirely. You would also likely lose your processing account, as your acquirer would regard you as too much of a liability. This could destroy your business.

How to Avoid Enrollment in VDMP

Keeping your operation compliant with the Visa Dispute Monitoring Program should be a priority. More broadly, this should also factor into your long-term strategy to reduce and prevent chargebacks of all kinds.

You can — and should — fight chargebacks through the representment process. However, this won’t have a direct impact on your chargeback rate, even if you win a reversal. The only way to ensure that you keep your chargeback ratio below the Visa threshold is to prioritize prevention. That calls for a comprehensive chargeback management plan aimed at identifying and remedying chargebacks by their source.

With that in mind, here are a few tips for preventing disputes and staying within the VDMP safe zone:

Need Help? We've Got You Covered.

Identifying dispute triggers, implementing prevention tactics, and carefully monitoring chargeback rates can all help keep you out of VDMP. Effective chargeback management, though, demands a lot of valuable resources. Most merchants struggle to stay on top of the situation, increasing the likelihood of additional losses.

Chargebacks911® can help deflect disputes, retain revenue, and keep your ratio safely below the Visa Dispute Monitoring Program threshold. Plus, all Chargebacks911 services are backed by a 100% ROI guarantee, meaning there’s no risk. Reach out to the experts today and see how much you stand to save.