As we often point out, friendly fraud (also called “chargeback fraud” or “first-party fraud”) has seen astronomical growth over the last decade. That’s the bad news.
The good news is that Visa is working to improve the situation by altering some of its rules regarding intentional cardholder misuse. An upcoming change known as Visa Compelling Evidence 3.0 will expand the list of compelling evidence you can use to help invalidate certain customer disputes. As a merchant, you’ll have more opportunities to present documents that can help you win a dispute reversal.
Recommended reading
- Visa Resolve Online: the Complete Merchant Guide to VROL
- Visa Chargeback Rules: What do They Mean for Merchants?
- Visa Chargeback Time Limits: The 2023 Guide
- Can Rapid Dispute Resolution Help You Avoid Chargebacks?
- Verifi Order Insight: Everything You Need to Know
- Visa Purchase Return Authorization: The New Return Process
Did You Know?
Visa no longer uses the term “chargeback” in a formal sense.
In 2018, Visa replaced the term “chargeback” with “dispute” for their brand. But, according to the 2022 Chargeback Field Report, acceptance of this change remains slow. For clarity, we’ll refer to a “dispute” as the act of calling the bank to question a transaction. One possible result of a dispute is a chargeback, or forced refund.
Current Visa Rules & Friendly Fraud
Current data suggests that at least 60% of all chargebacks probably stem from friendly fraud. This means the cardholder attempted to reverse a legitimate transaction by calling the card issuer and claiming that the transaction was unauthorized, or that you didn’t provide the goods or services promised. This type of fraud can happen accidentally, but an increasing number of these cases are deliberate; consumers can misrepresent a transaction in the hopes of “getting something for free.”
You have the right to fight back against invalid chargebacks through chargeback representment. Doing so eats up time and resources, though, and you have no guarantee of success. Generally, the process involves demonstrating that the transaction was valid and the customer’s claim is false.
As a merchant, you may believe a certain claim is illegitimate because the same cardholder has made similar purchases from you in the past, and those transactions were not disputed. If the consumer didn’t dispute other purchases from you, there’s a pretty good chance that the current transaction shouldn’t be disputed, either.
That evidence may not be accepted, however. Current Visa regulations don’t say the bank has to even consider it. That clears the path for a formerly good customer to commit friendly fraud. This is where Visa Compelling Evidence 3.0 comes into play.
What is Visa Compelling Evidence 3.0? When Does Visa CE 3.0 Take Effect?
The Visa Compelling Evidence 3.0 ruleset applies specifically to disputes marked with a Visa reason code 10.4: Other Fraud–Card-Absent Environment. This reason code is often associated with friendly fraud, due to its generic, open-ended nature.
Once in effect, Visa CE 3.0 rules will let you submit historical purchase evidence to show a legitimate cardholder was behind an order. If you can decisively prove certain elements (device fingerprint, IP address, etc.) used in the current dispute were also associated with two previously undisputed transactions, the fraud claim will be denied.
The Visa Compelling Evidence 3.0 initiative is scheduled to go into effect April 15, 2023 (as of this writing). This is subject to change, however, at Visa’s discretion. The company has pushed deadlines back before, and implementing a change of this scope is complex. Everyone has to get on the same page, and that can take time.
Obviously, the process is a little more involved than just submitting an extra document for some disputes. So, let’s take a look at Visa CE 3.0 in more detail.
How Does Visa Compelling Evidence 3.0 Work?
You must supply compelling evidence to successfully contest a dispute. According to Visa guidelines, this means “proof the cardholder participated in the transaction, received the goods or services, or benefitted from the transaction.” The documents that constitute compelling evidence are predetermined, based on the type of chargeback.
Disputes with reason code 10.4: Other Fraud – Card-Absent Environment can be tricky, though, because that code is essentially a catch-all for card-not-present fraud. Under the current regulations, merchants can challenge a 10.4 chargeback using a single previous transaction for which all of the following match the dispute in question:
- IP address
- Email address
- Physical address
- Telephone number
That sounds easy enough. You should note, however, that this information is only enough to challenge the chargeback. It doesn’t guarantee a reversal. If you have that data, then by all means, share it in support of your other evidence. If that’s your only proof, however, don’t expect to win the case.
Each card network has their own unique rules and requirements for dealing with chargebacks. Keeping current can be a full-time job. Let us help.
With Visa Compelling Evidence 3.0, the card network is expanding the definition of compelling evidence (at least regarding reason code 10.4). Once implemented, Visa CE 3.0 rules will require you to produce two transactions, both of which must be older than 120 days, and neither of which has been previously reported as fraud.
Obviously, these must also be associated with the disputed transaction, but only two of four points need to connect:
- IP address
- Device ID or fingerprint
- Shipping address
- Account login ID (mandatory match)
In addition to the account credentials, at least one of the submitted data points must be the IP address or device ID. Here’s a side-by-side look at the old and new requirements.
| Current Requirements | CE 3.0 Requirements | |
|---|---|---|
| Number of prior purchases (undisputed) | 1 | 2 or more |
| Items required to match between prior undisputed purchases and transaction in question | All of the following: IP address, Email address, Physical (shipping) address, Telephone number | At least two of the following: Customer account/login ID, Delivery address, Device ID/device fingerprint, IP address |
| Time frame for undisputed transactions used as evidence | None | Processing date must be 120+ days before the transaction in question |
| Submission | In dispute response | Either pre-dispute or in dispute response |
There are a couple of other crucial points about the Compelling Evidence 3.0 rollout that you need to keep in mind, too, regarding which transactions you can use as evidence:
- The same data elements must match across both undisputed transactions and the disputed transaction. The transaction must use the same payment method, and be settled at least 120 days prior to the dispute.
- Either the IP address or the device ID/fingerprint must be one of the two data items in question for items required to match between prior undisputed purchases.
- Visa will automatically identify two transactions involving the same payment method. They will transmit the transaction information with a request for you to provide the matching core data elements.
- For subscription merchants who don't have a matching IP Address or Device ID on recurring transactions, you may use an initial subscription billing transaction that's not disputed as fraud for evidence.
Your data transfer to the issuer will be seamlessly handled by Visa. They'll provide a standardized form fill that lets you provide the data necessary to prove that that transaction is not fraud. The core data elements you provided will help the issuer assess your relationship to the cardholder.
Arguably, the new rules are actually more complex and require more work. There’s a payoff, though. If you meet all the eligibility requirements, then the chargeback will be reversed in most cases. If there is any liability at that point, it shifts back to the issuer.
Sounds great, right? Hang on…it gets even better.
Prevent or Represent?
You’ve always had the right to fight invalid chargebacks. But, as we pointed out earlier, winning a reversal largely hinges on having the right evidence and documentation at hand.
Visa Compelling Evidence 3.0 not only widens the scope of admissible evidence, it also enables you to submit evidence at the dispute stage. In other words, you can submit evidence before a chargeback is even filed.
This could be a real game-changer. Stopping a chargeback before it’s filed means you won’t lose revenue from a fraudulent claim. You won’t have to pay chargeback fees or sink time and other resources into building representment cases.
Best of all, no bogus chargeback means no hit to either your fraud ratio or your chargeback rate. You don’t end up getting forced into a Visa monitoring program because of invalid disputes.
One of Visa’s hopes is that CE 3.0 benefits will encourage more merchants to use their Order Insight platform for resolving disputes. Order Insight allows merchants to send CE 3.0 compelling evidence as part of an inquiry response. Here’s an idea of how it works:
The issuer will automatically receive the additional transaction data within seconds. If all the evidence requirements are met, the case will be dismissed. Neither the issuer, nor the cardholder, can escalate the claim.
Learn more about Order InsightIf a chargeback does get filed, you can still submit prior transactions as part of your compelling evidence. You won’t avoid a chargeback fee, and it’ll still be reflected in your chargeback-to-transaction ratio. However, you’ll potentially increase your chances of winning a reversal.
Still, if you can stop a chargeback from ever happening, why wouldn’t you? Visa CE 3.0 gives merchants a great opportunity to block chargebacks, and prevention is always the better option.
Let’s compare the two:
| Submitted Pre-Dispute | Submitted in Dispute Response |
|---|---|
| Prevents dispute | Dispute response (representment) still required |
| Claim cannot escalate to dispute | Dispute cannot escalate to arbitration |
| No monetary loss, no fees | Chargeback fees still apply |
| No impact to fraud ratios | No impact to fraud ratio |
| No impact to chargeback ratio | Chargeback ratio is impacted. |
Timelines & Time Limits for Visa CE 3.0
Once Visa Compelling Evidence 3.0 goes live, you’ll only be able to submit prior transactions that are at least 120 days old. So, ensuring you have a system in place for capturing that information is critical.
What’s the reason for this 120-day limit? Right now, if a merchant wants to use a previous undisputed sale as evidence, any such transaction will do. It could’ve been last week, it could’ve been last year.
Unfortunately, that opens up a loophole for the cardholder: all they have to do is claim they hadn’t noticed that the evidential transaction was also fraudulent. Suddenly, instead of having compelling evidence for one chargeback…you’ve now got two separate chargebacks.
Common Question
Are other card networks going to implement rules like Visa CE 3.0?
While they haven’t announced any plans yet, there’s a pretty good chance Mastercard and the other card networks will introduce similar new evidence rules. These rules will probably follow the same pattern as those adopted by Visa.
To circumvent this, Visa is restricting the transactions you can use as evidence. The purchase must be at least 120 days old. Not coincidentally, 120 days also happens to be the time limit for reason code 10.4 chargebacks.
In other words, Visa is implying that if the cardholder didn’t dispute the transaction within the allotted 120-day window, then the cardholder acknowledges that they’re satisfied with the purchase. So, any transactions earlier than that are fair game for evidence.
If you’re enrolled in Order Insight, Visa will assist you by identifying up to 5 potentially qualifying undisputed transactions that also occurred within the allowed timeframe. Obviously, this only applies in pre-dispute situations.
Advantages of CE 3.0
A lot can change between idea and implementation. Overall, though, Visa’s CE 3.0 looks to offer merchants a host of benefits:
Disadvantages of CE 3.0
Are there downsides to CE 3.0? Overall, the most obvious potential drawback is the more stringent requirements.
We’re talking about finding two factors from two previous orders, then matching them to the same factors for the dispute in question. According to Visa, that’s enough to show that the purchase “would be qualified for protection,” thereby shifting liability to the issuer for that claim. That can mean extra work on top of your existing responsibilities regarding disputes.
Because response timelines will not be increased, the extra work will need to be done in the same amount of time. Having a way to easily store and quickly access transaction records will be crucial.
Also, while not exactly a downside, it’s important to note that some types of merchants will benefit from the new regulations more than others. For example, CE 3.0 could be a huge help for merchants using a subscription business model. If you’ve been billing the same card the same amount for six months, finding matching transactions should be a snap.
Finally, there are some lingering questions which are not clear at the time of writing. For instance, will issuers be able to use a lack of two transactions that meet the CE 3.0 requirements as a reason to rule against you after a representment? This will need to be clarified by Visa at a later date.
What Should I Do Now?
The launch date for Visa Compelling Evidence 3.0 is still months away. So, is there anything you can do now to prepare? Here are a few suggestions:
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