Visa Turns Up the Heat

19 July 2002

Visa issued a policy statement this month allowing issuing banks to charge back all online gaming transactions that aren't properly coded as such.

The policy, which is detailed in a July 2002 issue of Visa Business Review, a publication for members of the Visa association, states that an issuing bank may charge back Visa International transactions that were authorized on the basis of incorrect data.

In the policy, which IGN obtained a copy of on Thursday, Visa states that some I-gaming and online pornography merchants are trying to bypass its risk control measures by attempting to process their transactions as lower-risk purchases.

"For instance," the policy states, "occasionally, online gambling transactions an online adult entertainment transactions originating from offshore merchants are not properly identified in the authorization request."

"Assuming that all other chargeback conditions have been met, an Issuer may process a Visa International chargeback for "Transaction Exceeds Floor Limit, reason code 72, if: Authorization was obtained using invalid or incorrect transaction data, and the issuer has subsequently identified the transaction as online gambling, online adult entertainment or any other type of transaction not properly identified."

To properly identify an online gambling Visa transaction, a merchant must code it with merchant category code 7995, meaning that the purchase consists of betting; processing code 11, which identifies the purchase as an online gambling transaction; and POS condition code 59 (field 25), meaning that it is an electronic commerce transaction conducted via an open network.

In the two-page Visa Business Review article, Visa states that it is important for issuing banks to correctly code transactions because then they can decide whether to accept or decline them based on accurate information.

"Because of the uncertain legal status of online gambling in the U.S. and the substantial business risks, many issuers have elected to decline all identifiable Internet gambling transactions," the statement said. "These risk management efforts, however, are hindered when acquirers or processors do not properly identify online gambling transactions in the VisaNet authorization request.

"If one or more of the required data elements for an online gambling transaction are missing or inaccurate, an Issuer may authorize a transaction based on false information."

The policy is significant because it marks the first time Visa has written this particular chargeback rule for the international level, said a source close to the credit card industry who did not want to be identified.

"If you have a renegade operator out there who think he's pulling a fast one, and some one finds out, they're going to eat the transactions," the source said.

The policy isn't new, however, said Charles Crawford, who is a consultant to the credit card services industry. Crawford, the president of Crown Services, said the policy statement reinforces the rights of issuers to charge back transactions that are coded incorrectly.

"As far as I can see, there is nothing new, but it does underscore how Visa is dead serious about making sure that information going with transactions coding is accurate and how they will probably use this to strengthen enforcement and be much more vigorous," Crawford said. "It's sort of, you can run but you can't hide."

'Scary As Hell'

"[The policy] lets us know that they are going to start aggressively enforcing this, and by doing that, that really puts a lot of things at risk," the source said. "It's not just transactions going forward from this point. I am sure they're going to start encouraging banks to start going back through their books and looking for the names of processors and that sort of thing. This is pretty serious if they're going to start very aggressively doing this."

The source, who describes the potential effect on the I-gaming industry as "scary as hell," said there is no time limit as to how far back in time issuing banks can go to initiate chargebacks on improperly coded transactions.

Crawford also said the statement doesn't specify how long ago the transaction must have been for an issuer to charge it back, meaning that issuing banks can go back as far in time as they want. He said he doesn't believe that will happen, though.

"I don't think it was Visa's intent to make it retroactive," he said. "But who knows, Capital One certainly went back arbitrarily and just started changing its mind about those transactions."

Visa's policy statement could be bad news, especially since it contains elements that give issuing banks room to chargeback online gaming transactions that were made using e-cash that was purchased with Visa cards.

"The bottom line is that Visa has got everything in their corner," said the latter credit card industry source. "They control everything; we can't tell them what to do, and our industry is such a drop in the bucked that even if they lose all our business, it's really not a big deal."

Representatives of Visa did not return IGN's phone calls.

Anne Lindner can be reached at