The Secret to RegTech: Four E’s

Regulatory technology or “RegTech” helps entrepreneurs maintain compliance with various regulatory requirements in an efficient and cost-effective manner.

Payscout, which provides RegTech solutions for merchants in a wide array of verticals, has developed their solutions over time by deploying a surprisingly simple framework: Education, Enablement, Enforcement, and Evolution (the four E’s).

In a complex ecosystem such as the payments industry, financial regulation impacts every element of the system, from the consumer and their issuing bank, to the merchant, acquiring banks, service providers, and many more. All of those individual groups represent key stakeholders in the system.

Decisions that impact the group should begin with a process of Education, wherein all stakeholders are engaged at the outset. By beginning with education (and ensuring all relevant stakeholders are engaged in the process), both regulators – and the systems providers who help business owners navigate compliance issues – share all of the available information for use in creating the most optimal outcomes. Good examples of the education phase in action include events such as the Electronic Transactions Association’s Fly-In and FinTech Policy Forum, of which Payscout is an active, year-round participant. The events provide a forum for stakeholders to come together and bilaterally engage in the education process.

The second stage is the Enablement phase, which refers to the development of policies, processes, and systems that enable entrepreneurs to conduct business in a compliant manner. Payscout, at its core, is a systems provider who builds the processes that enable merchants to conduct payment transactions in a compliant manner. It is essential that the enablement phase (the development of systems) follows, as opposed to preempting, the education phase.

The third stage is Enforcement, and this refers to the critical steps required to remove bad actors from the systems once they have been developed and deployed. Enforcement is an essential part of any functioning system, but like the Enablement phase, it is critical for this stage to follow and not precede Education and Enablement. Only after all stakeholders have been meaningfully engaged in Education, and systems have been developed on the basis of that education, should enforcement be undertaken. If and when enforcement precedes Education, the system begins to break down.

Lastly, Evolution refers to the necessary contiguous nature of the regulatory environment and the need for the systems that support it to continue to mature. The key in this phase is to return the cycle to Education, specifically, by reviewing and evaluating what worked and did not work in the policies, procedures, systems, and enforcement inherent in the regulation.

The Four E’s model has broad implications, but in RegTech, it serves as an essential foundation for sound regulatory policy.

Contact Sales@Payscout.com today to learn more about how our RegTech solutions can help you grow your business responsibly. 

Chargeback Changes for CVV2 Mismatch

Change in Visa Chargeback rules in case of a CVV2 mismatch

Effective April 14, 2018, Visa card issuers are no longer able to chargeback a transaction if the original authorization was approved but included a CVV2 mismatch response. Let’s look at this in simple terms and understand its implications on merchants and issuer banks.

The CVV2 or Card Verification Value is a 3 digit number located at the back of a Visa card and is separate from the main credit card number itself. It is a secure number that protects merchants from fraudulent transactions in card-not-present situations, including over the phone (MOTO) or online. It serves as proof of possession of the card by the customer, especially since Visa strictly prohibits merchants from storing CVV2 numbers as a part of the customer’s data.

CVV2 numbers come into play when the customer first enters their credit card details. The issuer bank verifies the card details and ensures the customer’s account has the amount needed to make the purchase. Once the verification is completed, the issuing bank ‘authorizes’ the transaction.

Next, the authorization (along with the CVV2 code) are sent to the payment gateway. At this point, the CVV2 code entered by the customer is “matched” with the correct CVV2 code and a response is generated.

These are the response codes:

M – If the codes match

N – No match

P – Not processed; the code was not validated.

S – Should be on card but not indicated; customer left the field blank

U – Issuer does not participate in the CVV2 program

The payment is captured by the gateway if the codes match.

Now, imagine a situation in which the customer complains they have been billed for a transaction that wasn’t done by them. The merchant checks their records and notices that the same transaction was declined at their end. This essentially means that the transaction was ‘authorized’ by the issuer bank but was ultimately declined once there was a CVV2 code mismatch.

Regardless, a chargeback is issued to the merchant. The merchant then looks at the response code to determine whether the customer was in possession of the card for this transaction. If the response received is ‘N’ or a ‘No match’, the merchant seeks protection from the chargeback.

With the new rules implemented by Visa, the issuer can no longer issue a chargeback to the merchant in a situation where the payment has been authorised but the CVV2 code has mismatched.

Key takeaway: As a result, this change will likely lead to an increase in the number of authorization rejections when the CVV2 provided is incorrect, as issuers will take more measures to protect themselves.

If you’re a merchant, please be reminded that the CVV2 should always be used as part of your fraud prevention measures for one-time, card-not-present transactions and continue to capture the correct CVV2 to help ensure that the used card is in the cardholder’s possession.

 

Learn more about Payscout’s e-commerce solutions and how we help keep our merchants safe and secure: www.payscout.com/eCommerce

 

 

 

Visa’s New Claims Resolution Process: What it Means for Your Business

Visa is introducing a new process called Visa Claims Resolution (VCR) to resolve disputed transactions or chargebacks. While the goal is to simplify and expedite the claims resolution process, these changes will have an impact on your business. Payscout is here to help you understand how.

What does VCR mean?

With VCR, Visa is moving away from a “litigation based” dispute processing model to “liability assignment” based model. This essentially means that instead of each case of chargeback being treated like a “courtroom trial,” with several rounds of back-and-forth between all the stakeholders, Visa will automate a large part of the process and assign liability to the concerned party. This will reduce the amount of communication taking place between the issuer, merchant, and acquirer. The intention is to save time, resources, and cost. There will be human intervention only in case of complex cases of chargebacks.

Why is Visa making this change?

Visa found that it took an average of 46 days to resolve a chargeback, and in certain cases, up to 100 days. The objective of VCR is to simplify the process of addressing disputes and make it more efficient. This will reduce cost and wait times for you (the merchant) – but it will also reduce your response time (more on that further down the post). VCR aims to resolve chargeback issues within 31 days or less.

When will these changes go into effect, and who will be impacted?

VCR will be effective on April 13, 2018. The new rules will be applicable to all merchants, acquirers, and issuers worldwide. Ultimately, it will also impact your customers.

What is changing?

Under the current system, you can file a chargeback under 22 different Reason Codes. To simplify the process further, VCR will now allow cluster these reasons into 4 broad categories called Dispute Categories:

  • Fraud
  • Authorization
  • Processing Errors
  • Consumer Disputes

There are now two new process flows for tackling the disputes in these categories: Allocation and Collaboration.

Allocation will be used to resolve disputes under the Fraud and Authorization categories. Visa Resolve Online (VROL), the existing platform for filing disputes online, will play a pivotal role of automating the process. It will run an automated check of the chargeback filed by the customer and then automatically reject it:

  • if the customer’s timeframe for lodging a complaint has elapsed
  • if a return issue has already been filed in your system for the customer

Automatic blocking of redundant or ineligible requests will reduce the annual number of chargebacks by 14%, according to Visa, thereby shortening timelines.

In a case where a customer’s dispute qualifies, VROL automatically assigns the liability to the merchant.

While the majority of disputes will fall under the Allocation Workflow, some disputes would necessarily need several rounds of interaction between the merchants, issuers, and acquirers. This is particularly true for Processing Errors and Consumer Disputes categories.The process of Collaboration is the same as the current process of filing and resolving disputes.

What are the key takeaways business owners should know?

  • Your response time decreases from 14 days to 10 days. You will have to develop a mechanism that allows you respond fast and accurately. Using electronic dispute processing options and enrolling for email notifications is strongly advised.
  • Under allocation workflow, you will be able to defend a chargeback only if you have compelling evidence. This means that you will have to record and maintain evidence for every transaction.
  • This blog post. We’ll keep updating this blog as we hear more from Visa on this new development.

Source: VCR Efficient Dispute Processing for Merchants