The Green Sheet Online Edition
April 4, 2025 • 25:04:01
Visa TC40 reports and VAMP
Spring is beautiful. Everything old is renewed. Strangely, I feel that way about Visa's Transaction Component 40 (TC40) reports. Visa's fraud reports are ageless but are being dusted off and held up as a tool Visa will use to measure acquirers and merchants.
Acquirers and processors have consumed the TC40 reports to monitor issuer-reported fraud at merchant locations for decades. This report is another tool in the continual fight against suspect merchants. It is also a dated tool.
Where AI can spot trends and anomalies within authorization requests, the TC40 awaits the issuer to receive notice from a cardholder regarding a fraudulent item and then has 30 days to report that item as fraud – before it appears on the TC40 report. Consequently, while the TC40 is important, it's not an ideal early indicator. That's why I was surprised it was being used as the centerpiece of one of Visa's new reporting and fee programs.
Recycle
With Visa's new Acquirer Monitoring Program (VAMP), fraud reporting has become critical to acquirers and processors. Visa has always monitored fraud and compels issuers (and acquirers) to report fraud, but VAMP has increased the criticality of measuring and monitoring issuer-reported fraud (see my prior article on VAMP at www.greensheet.com/ebooks/gs250301/index.html#p=26).
Visa provides acquirers with fraud reporting through its TC40 reporting. The TC40 is composed of daily Transaction Response Records (TRR). The 40 is the code used in all Visa fraud reporting systems. (My fellow industry consultant Geoff Millikan postulated that 40 was simply the next number up in the lineup of clearing messages).
Visa's fraud reporting system helps report, track and analyze fraudulent transactions and trends. Fraud is defined as someone other than the cardholder using the account number or card without the cardholder's consent or when the true cardholder is manipulated to use the card in a fraudulent manner. Sausage making The TC40 consists of four TRRs: TCR 0 through 3. TCRs 1 and 3 are primarily for mail fraud and cardholder-not-received claims. TCR 0 is the primary record that makes up the data in the TC40. TCR 2 is a conditional field and if present contains a Visa transaction identifier. TC40 reporting has a host of information about the merchant, the transaction, the acquirer and, of course, the type of fraud. The most common fraud types are:
- Lost
- Stolen
- Not received as issued
- Counterfeit
- Miscellaneous
- CNP fraud and
- Account takeover
Not all Squares process payments
All fraud-related chargebacks should be found on the TC40 report, but not all TC40 reported transactions have corresponding chargebacks. There are several reasons for this, including very small-dollar transactions that issuers write-off rather than chargeback.
Additionally, Visa's Rapid Dispute Resolution (RDR) converts pre-disputes to credits, but they still appear on the TC40. According to an online article authored by Jessica Velasco of Kount, only 63.7 percent of the TC40 reported transactions advanced to a chargeback (see bit.ly/3YezW8e).
With the VAMP announcement, acquirers are most concerned about CNP fraud. Unfortunately, unlike chargebacks, there may be delays between the cardholder notification and reporting. Issuers are financially incentivized to immediately act on a cardholder's dispute and chargeback the transaction.
The chargeback clock is ticking, and failure to promptly chargeback a disputed item could result in the issuer absorbing the loss through a Past Time rebuttal by the acquirer. With fraud reporting, issuers have 30 days from the cardholder's notification to report the fraud.
While certainly issuers intend to promptly file fraudulent reporting, unlike with chargebacks, they are not financially incentivized to do so. Consequently, the TC40 reporting is often important and critical information, but it may also be stale.
Acquirers and processors need to consider this, especially for newer and unseasoned merchants. Newer and large merchants could have high fraud ratios that drive up a portfolio's VAMP ratio. Because of the lag in the notice, those fraudulent items could impact the portfolio for months to come.
Acquirers and processors should consider a tiered pricing methodology based on a merchant's VAMP ratio so as to reward merchants who assist in maintaining a lower ratio while appropriately charging merchants that are a drag on the ratio.
AI will aid detecting patterns and limit bust outs. Acquirers need modern solutions for early fraud detection or they will be dependent on dated tools and frustrated by the results.
Unfortunately, Visa uses the TC40 reporting in its VAMP ratio. Consequently, just because a merchant has a low chargeback ratio, that condition, like spring-time love, may be a necessary but insufficient component for a lasting relationship. 
As founder of Humboldt Merchant Services, co-founder of Eureka Payments, and a former executive for such payments innovators as WePay, a division of JPMorgan Chase, Ken Musante has experience in all aspects of successful ISO building. He currently provides consulting services and expert witness testimony as founder of Napa Payments and Consulting, www.napapaymentsandconsulting.com. Contact him at kenm@napapaymentsandconsulting.com, 707-601-7656 or www.linkedin.com/in/ken-musante-us.
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