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Updates for the New Year

By David H. Press

There are several important updates to topics I wrote about recently in The Green Sheet. Visa Operating Regulations Since my last article, "What MLSs Need to Understand About Underwriting" (The Green Sheet, Jan. 12, 2004, issue 04:01:01), the newly revised Visa Operating Regulations have gone into effect (as of Oct. 1, 2003); however, they now specify additional requirements for e-commerce merchant acquisition and monitoring.

To ensure that online merchants are financially responsible, the acquirer must inspect and monitor them as follows:

Business Description

Prior to signing an online merchant, the acquirer must obtain a detailed business description from the merchant.

Initial Web Site Review

Prior to signing an online merchant, acquirers must:

  • Examine the merchant's Web site to verify that the merchant is operating within the acquirer's jurisdiction
  • Ensure that the merchant is not engaged in illegal activities or any activity that could damage the Visa system or brand
  • Retain copies of all relevant Web site screen shots
Annual Web Site Review

With existing online merchants, acquirers must:

  • Examine the merchant Web sites at least once each year
  • Retain copies of all relevant Web site screen shots (retained copies may be in either hard copy or electronic formats)
  • Provide the retained copies to Visa upon request
In another article, "It's Time to Start Using Verified by Visa" (The Green Sheet, June 9, 2003, issue 03:06:01), I stated that Verified by Visa has become a useful tool for acquirers to implement.

When properly used, Verified by Visa eliminates the possibility of chargebacks resulting from fraudulent transactions. The risk of loss now remains with the issuer for these types of cardholder complaints. This is a huge benefit to acquirers and online merchants that have been plagued with chargebacks, which are most commonly fraudulent mail/phone order transactions, or 'Reason Code 61,' according to Visa terminology.

When online merchants use Verified by Visa, they eliminate 'Reason Code 61' chargebacks-and the new "I didn't do it" chargeback category where the cardholder does not recognize the transaction, or as Visa puts it, 'Reason Code 75'-and dramatically reduces overall chargeback totals.

Merchant acquirers using Verified by Visa will be able to represent any Reason Code 61 or Reason Code 75 chargebacks. The merchant is required only to submit the transaction for enrollment verification; the cardholder does not have to be enrolled in and using Verified by Visa.

Visa has revised its Operating Regulations to support use of Verified by Visa. The regulations now:

  • Require an Address Verification Service (AVS) inquiry for a transaction to qualify for CPS/e-commerce Preferred Retail, if applicable
  • Must reflect the authorization characteristics indicator values and payment service values for:
  • CPS/e-Commerce Preferred Hotel and Car Rental
  • CPS/e-Commerce Preferred Passenger Transport
  • Specify that an acquirer may optionally use 'D' for digital goods and 'P' for physical goods in the e-commerce goods indicator field of the clearing record in order to identify the type of goods purchased.
U.S.A. Patriot Act Compliance

Another article, "How the Patriot Act Affects Rules of Risk Prevention" (The Green Sheet, July 14, 2003, issue 03:07:01) reviewed what payment services providers need to do to comply with the U.S.A. Patriot Act. To prevent money laundering and terrorist financing through its system, Visa has implemented a new anti-money laundering program.

To ensure Visa and its members are in compliance with the Patriot Act, its Operating Regulations now require members to:

  • Implement and maintain their own anti-money laundering programs
  • Block the authorization of cardholder transactions or terminate all merchants that engage in the following activities:
  • Introducing illegal funds into the Visa system
  • Laundering money through the Visa system
  • Financing terrorist activity through the Visa system
Additionally, the new phrase "Visa Issuer Fraud Detection Service" will replace the previously used term, "Cardholder Risk Identification Service." Visa encourages acquirers to deal with any high-risk merchant activity and ensure compliance with its Operating Regulations.

Visa revised the regulations to expand the penalty amounts and assessment periods relating to Risk Identification Service fines.

The Operating Regulations now also modify the on-site review fees assessed in conjunction with the Risk Identification Service and the Acquirer Monitoring Program. The one-time fee of $5,000 has been reduced to $2,500 per day and a one-week minimum fee of $17,500.

Visa assesses a $5,000 fine to the acquirer when it designates a merchant as high-risk. If a merchant has excessive fraud activity within a rolling six-month period, Visa will also assess the following penalties:

  • 1st occurrence-$5,000
  • 2nd occurrence-$10,000
  • 3rd occurrence-$25,000
  • 4th occurrence-$50,000
  • 5th occurrence-$75,000
  • Each subsequent occurrence-$100,000
There are additional fines and conditions if an acquirer or merchant attempts to avoid detection under the Risk Identification Service program.

If Visa determines that an acquirer or its merchant changed, modified or altered merchant data in any way to avoid detection by the Risk Identification Service, Visa may assess a $25,000 fine to the acquirer for each occurrence identified.

Chargeback Monitoring Program Enhancements

To further enhance the effectiveness of its merchant, acquirer and high-risk chargeback monitoring programs, Visa revised its Operating Regulations to modify monitoring parameters, merchant disqualification and fee assessments.

Visa will now monitor the total volume of domestic (U.S.) and international interchange and chargebacks for single merchant outlets and identify merchants that experience all of the following activity levels during any month:

  • 100 interchange transactions
  • 100 chargebacks
  • A 1% ratio of overall chargeback-to-interchange volume
A merchant that moves an outlet to the United States at the same time it is operating in another region's chargeback monitoring program will be assigned the equivalent status in the U.S. region's comparable chargeback monitoring program.

With the increased number of chargebacks allowable per month, I expect Visa will be more vigilant in enforcing its new regulations. As a result, expect the number of merchants in violation of the parameters to decrease.

David H. Press is Principal and President of Integrity Bankcard Consultants, Inc. Phone him at 630-637-4010, e-mail David at or visit

Notice to readers: These are archived articles. Contact names or information may be out of date. We regret any inconvenience.
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