Mastercard and Salesforce’s new initiative to help customers streamline transaction disputes is a “huge win” for both companies, analysts say. The partnership integrates Salesforce’s Financial Services Cloud (FSC) with Mastercard’s dispute resolution services.

According to the 2024 Cardholder Dispute Index from Chargebacks911, 78% of U.S consumers filed at least one chargeback in the past year, amounting to a minimum of $65.2 billion in disputed charges in 2023. With the growth of online purchasing, Mastercard’s fraud dispute service, Ethoca, projects that by 2026 there could be 337 million chargebacks annually, a 42% increase from current numbers. 

This provides a fruitful landscape for the new partnership. Ethoca already offers near real-time notifications when a financial institution raises a chargeback. Now, that data will be entered into Salesforce, which can connect the merchant and payment information to back offices at the relevant card issuer, giving greater visibility to every team member working on the dispute.  

The new integration benefits both merchants and customers by speeding up the resolution of transaction disputes and reducing the costs of resolving them. Salesforce hopes the partnership will deflect about a quarter of its call center queries. For its FDC customers, the technology is already available.

“This is a huge win for both Mastercard and Salesforce,” said Don Apgar, Director of Merchant Services at Javelin Strategy & Research. “Once a cardholder opens a dispute with their card issuer, gathering the history of the transaction as well as the merchant’s version of that history has proven to be most difficult part of the chargeback process to automate. Using the Salesforce SFC to inventory and share those facts is a huge win for issuers struggling to upgrade or build an in-house CRM to address these issues.”  

AI Is the Key

Mastercard’s wealth of data makes it uniquely positioned to detect fraud.

“We see something like 140 billion transactions every year from 3 billion cards in 210 countries,” Raj Seshadri, Mastercard’s Chief Commercial Payments Officer, said last week at the Barclays 14th Annual Emerging Payments and FinTech Forum. “That’s a lot of data. And then we have hundreds of third-party sources that we leverage to create, add nuance and color. We use advanced analytics, machine learning, AI to really create data sets that are high quality and machine readable.”

The use of AI is exceptionally relevant when it comes to chargebacks. In February, Mastercard announced an upgrade to its card network to add more generative AI technology to handle and resolve disputes. 

The post Mastercard and Salesforce Are Fighting Chargebacks appeared first on PaymentsJournal.

The rise in e-commerce fraud, combined with consumers’ increasing willingness to file chargebacks, has left issuers and acquirers scrambling to shore up their dispute management processes. With a complicated process that varies depending on the payment network involved, chargebacks have become a huge operational challenge for many merchants.

In a recent PaymentsJournal podcast, Cheryl Fitzgarrald and Kate Knudsen, Senior Program Directors at BHMI, and Don Apgar, Director of the Merchant Payments Practice at Javelin Strategy & Research, discussed why chargebacks are an increasing concern for so many merchants—and what they can do to combat the problem.

What Makes Chargebacks So Complex?

A chargeback allows consumers to dispute a transaction and request a refund for a variety of reasons, such as fraud, unauthorized charges, or dissatisfaction with goods or services. When a consumer initiates a chargeback, a detailed workflow process for handling the payment dispute unfurls. This process is meant to provide a standard method for dispute claim management.

One of the main reasons chargebacks tend to get complicated is the number of parties involved. There’s the cardholder, the issuer, and the merchant that sold the goods or services being disputed. There’s also the acquirer, which acquires the payments on behalf of the merchant. Finally, there are the card networks, such as Visa and Mastercard, that oversee the entire process.

“Most of our clients support a wide range of payment networks, from the global giants like Visa and Mastercard to regional players within the client’s own country,” Knudsen said. “Each of these networks comes with its own set of dispute regulations. And in the U.S., we’ve got federal regulations, like Reg E and Reg Z, to keep in check too. These regulations tend to be very stringent and lay out the requirements, process, and timelines for handling disputes.”

That means handling chargebacks can require not just a group of trained personnel but also flexibility.

“We’ve got a dedicated team focused on tracking every mandate from the networks and integrating them into our dispute workflows,” Knudsen said. “It’s a constant cycle of review and modification. We’re always poring over that mandate documentation and identifying the necessary changes to our workflows to ensure compliance. It is a tedious and meticulous process but one we’re fully committed to because managing disputes effectively and compliantly is vital to our clients.”

Driving the Increase in Chargebacks

Data breaches and hacking have resulted in more card numbers and consumer credentials for sale on the dark web than ever before. But other factors are also driving the increase in chargebacks.

 One is the growth in e-commerce merchants. It’s never been easier to launch an e-commerce storefront and sell products online, but many retailers focus on the site and not necessarily on customer experiences. Consumers often have a question about their bill and want to request a refund, maybe because something was damaged or didn’t arrive. And if they can’t find a way to connect easily with the merchant, they’ll contact their card issuer and initiate a chargeback.

Another factor is recurring billing that’s difficult for the consumer to cancel. Consumers often find it easier to initiate a chargeback with their issuer rather than weave through customer service at the recurring billing provider.

“Many companies find it difficult to invest the time and money required to continually analyze the ever-evolving mandate changes,” Fitzgarrald said. “But if they are not up to date, this results in penalties and claim losses. And many companies are still using legacy systems that require a lot of human intervention. For instance, some companies still use spreadsheets and manual processes that make it difficult to keep up with the regulation changes and the growing number of disputes.“

“Another area we see is on training,” she added. “It’s difficult to hire somebody with experience in chargebacks, and there is a high turnover in this area. Then you have the complication of the different networks involved with different rules and regulations.”

The Swivel Chair Approach

What many companies use is a swivel chair approach. This refers to the manual process of navigating back and forth between internal applications and external card network dispute systems like Mastercard Claims Manager and Visa VROL. The changing protocols and lack of automation and integration with the networks can lead to inefficiencies, errors, and unnecessary claim losses.

“Naturally, as the number of chargebacks increase, so does the overall cost of managing them,” Knudsen said. “And another reason that goes hand in hand with the increasing volume of chargebacks is that, due to the complexity and the ever-changing regulations, claim losses can be high. Many acquirers opt not to even pursue a certain portion of their chargebacks because of the cost and the complexity.”

Apgar noted that a lot of companies and merchants aren’t prepared for chargebacks. “They will provide customer service and answer a phone call or an email from a customer,” he said. “But if that transaction turns into a chargeback, the merchant hasn’t organized and categorized that data. They don’t have the information in one place and organized so that when the chargeback comes in they can provide a definitive story to the card-issuing bank.”

One of the most impactful things businesses can do is to streamline the management of disputes with consolidation and automation. Many companies juggle multiple systems and rules and processes, but there are solutions that allow companies to manage all disputes within a single integrated solution. This includes various transaction types, card-based and non-card-based, like account-to-account or peer-to-peer payments.

API integration is a game-changer here. The swivel chair approach can be replaced with two-way APIs that interface with Mastercard Claims Manager and Visa VROL. This automation streamlines the exchange of dispute data with these networks and eliminates the need for manual intervention.

When companies replace manual processes with preconfigured workflows that guide dispute workers through each step of the workflow, the percentage of claim wins dramatically improves—and so does employee satisfaction.

Self-Service Functionalities

Self-service capabilities are another cost-saving option. For example, a payment service provider could provide a solution that allows its merchants to access their own transactions and manage their own disputes.

“From a merchant’s perspective, the two most important things they can do is first to audit the customer journey, especially in the e-commerce world,” Apgar said. “Are the descriptions of the products accurate? Are the expectations being set in terms of when and how it’s going to be delivered?“

“Secondly, use a platform to organize and collect all the data that the merchant tracks. Most of the fraud prevention and other customer contact information comes from third-party systems. Keeping that information organized in one spot so that they can quickly respond to a chargeback and tell their side of the story is vitally important.”

With the proliferation of digital shopping, and particularly the growth of the subscription economy, retailers should expect chargebacks to continue to increase. As BHMI’s experience shows, anticipating that chargebacks will happen—and building the infrastructure to handle them—will be key to combating this erosion of profitability.

The post New Approaches to the Persistent Problem of Chargebacks appeared first on PaymentsJournal.

No one, from merchants to processors to customers, likes handling disputed payments. Visa Compelling Evidence 3.0 (CE 3.0) intends to reduce these pain points. It provides a standardized framework for all parties involved in the chargeback process, enabling merchants to substantiate claims by sharing real-time information and preventing disputes.

The latest update to CE 3.0 brought a new round of concerns from acquiring entities. PaymentsJournal turned to Carol Palmer, Head of Risk & Compliance Operations at Ubiquity, and Daniel Keyes, Senior Analyst for Merchant Services at Javelin Strategy & Research, for a deep dive into the introduction of CE 3.0.

The Road to CE 3.0

CE 3.0 streamlines and expedites the resolution process for unauthorized disputes, focusing on addressing instances of friendly fraud or first-party fraud. In a collaborative effort, Visa worked closely with merchants and issuers to formulate this comprehensive rule change.  

Visa conducted a thorough analysis of the specific requirements for merchants to confirm a cardholder’s previous participation and identify the essential resources for notifying when a transaction is mistakenly labeled as fraudulent. The rule adjustment empowers small businesses by enabling them to present more robust evidence in such cases. The goal is to empower merchants to avoid or minimize unjust chargebacks, creating a fairer and more efficient system for all parties. 

“CE 3.0 delivers substantial advantages to merchants, ushering in a transformative shift,” Palmer said. “However, it’s important to note that issuers are still grappling with the challenges associated with billing errors and the burden of proof. Despite this, CE 3.0 introduces a significant improvement by meticulously examining personal data and seamlessly sharing it with the cardholder, mirroring the efficiency of CB processing.” 

Keyes agreed that the benefits outweigh the negatives. “CE 3.0 puts more liability and responsibility on issuers,” he said. “But there are also more tools and a process they can use to handle that effectively and have this ultimately come out as a positive experience.”

The CE 3.0 methodology aligns with Rapid Dispute Resolution (RDR) and order insight. Through RDR, issuers get the benefit of transaction retrieval without incurring the typical chargeback costs. This eases concerns over blocked chargebacks and enables issuers to present data from order insight as compelling supporting documentation. From a regulatory standpoint, however, it’s crucial to acknowledge that the burden of proof rests with the issuer. 

One prime advantage for issuers is real-time access to information and providing them with critical data promptly. This capability is a game-changer, significantly enhancing the issuer’s ability to navigate and respond effectively within the dynamic landscape of transaction disputes. 

Some Remaining Concerns

The new policy carries financial advantages and disadvantages. CE 3.0 and Rapid Dispute Resolution allow transaction returns without imposing chargeback costs on issuing banks. This creates opportunities for substantial cost savings and heightened financial efficiency. 

Despite the advantages, it’s crucial to recognize that the responsibility of proof in billing errors and chargebacks still rests with issuing banks. This introduces an ongoing challenge, as issuers must still shoulder that burden, even with the introduction of CE 3.0. 

“I’m seeing a lot of issuers who are frustrated and have not adapted perfectly to the new rules,” Keyes said. “There are increases in chargebacks that haven’t been handled as well as they used to. There’s a lot of room for improvement on the part of issuers.”

Impact Hinges on Nuanced Circumstances

Although CE 3.0 brings about real-time information benefits, the financial impact depends on the nuanced circumstances at play. The ability for issuers to leverage these changes to their benefit will be a critical factor in determining the overall financial outcome. 

Issuers face a challenge in implementing CE 3.0, particularly in instances where the evidence provided is limited. Limiting two or more undisputed transactions from the same merchant within 120 days poses difficulties for issuers in conducting a reasonable investigation, as Reg E requires. 

How C.E. 3.0 Works: Sample Scenarios

Palmer offered two examples to demonstrate how CE 3.0 operates. The first scenario asks this question: How should the agent proceed if the cardholder confirms authorizing previous transactions with a merchant but disputes one specific transaction, but Visa blocks the chargeback because of prior undisputed transactions? 

In the current process, Visa’s guidelines say the issuer must conduct a cardholder callout to verify whether the other transactions are disputed. If two or more pieces of information from order insight match, the agent can then proceed with denying the claim. 

“With the new policy, as per Reg E, the claim cannot be denied merely based on the awareness of previously authorized transactions,” Palmer said. “Also, the agent cannot submit an exception with a comment that the cardholder claims the other transactions are authorized alone. The comment for the exception should specify which cardholder information didn’t match.” 

Palmer’s second scenario considers a case where a transaction might be seen as undisputed due to the impracticality of initiating a chargeback for lower amounts within Visa Resolve Online. Consider a claim with three transactions of $100 each and two transactions of $10 each. The $10 transactions don’t meet the threshold for initiating a chargeback. Consequently, only fraud reports are initiated for the lower amounts, which poses challenges for issuers because these fraud reports are not recognized as “previously disputed transactions.” 

Unfortunately, this limitation can be leveraged against the issuer, leading to transactions being categorized as undisputed despite the practical challenges in initiating chargebacks for them. “Think of this rule change as a dance,” Palmer said. “Banks are still figuring out their steps, adjusting to the rhythm of fewer chargeback costs, while still dealing with some challenges. To ensure everyone is on the same page, there must be teamwork—a dance between banks, businesses, and customers.” 

Rest assured, this isn’t a one-time thing; it’s an ongoing dance. CE 3.0 asks banks to fine-tune their moves—understanding merchant documents better, updating how they handle mistakes, and making the most of the new features. 

As the financial dance floor changes, it’s essential to understand what this rule change is all about. “It’s not just about following the rules; it’s about staying in tune with the beat of change in the financial world,” Palmer said. “The music of CE 3.0 is playing, and banks need to groove along with the rhythm of new paradigms.” 

The post The Next Phase of Dispute Resolution appeared first on PaymentsJournal.

Chargebacks continue to be a challenge for many merchants. While some might slough them off as just the cost of doing business, chargebacks can ruin a company, not just its bottom line.  

Merchants must consider investing in fraud detection and other preventive measures to ensure that excessive disputes do not occur.

During a recent PaymentsJournal webinar, Justin Clements, Director of PR & Media Relations at Chargebacks911, Jarrod Wright, VP of Marketing at Chargebacks911, and Daniel Keyes, Senior Analyst of Merchant Services at Javelin Strategy & Research, discussed key findings from Chargebacks911’s 2023 Chargeback Field Report.

Roughly 300 merchants participated in the survey, which offers a glimpse into the current chargeback landscape and illuminates some of the biggest concerns. In addition to surveying merchants, Chargebacks911 also polled consumers about their concerns to gain an accurate understanding of the trends.

How Companies Are Tackling Chargeback Representments

Chargeback representment is the process of fighting a false payment card dispute. It involves providing evidence to the bank to establish not only that the transaction was valid but also that the cardholder’s claim should be overturned.

According to the 2023 Chargeback Field report, 70.1% of businesses manage their chargeback representments in-house. That’s a substantial increase from a year prior, when just under 50% of businesses indicated as much. By contrast, 15.7% of respondents said they used software solutions, while slightly fewer, 13.4%, said they fully outsource chargeback representments.

The majority of chargeback representments are delegated to accounting and finance departments—or, in many cases, a dedicated team.

“From business to business, it varies wildly,” Wright said. “The people responsible for chargebacks changes from almost every organization.”

Biggest Challenges to Chargeback Management

There are many reasons chargebacks are not mitigated head-on. Some businesses don’t see them as a problem, while others find that tackling disputes takes too much time and resources away from other business strategies.

According to Chargebacks911, one of the biggest obstacles identified by merchants was winning chargebacks.

“Even when you come in the representment process with all the evidence that you can, it’s still an uphill battle,” Clements said.

Identifying false positives is yet another issue. “Identifying friendly fraud and false positives are two sides of the same coin,” Wright said. “And the merchants that that we speak to, that’s the sort of problem that most of them realize they’re having. They have a bucket of chargebacks, and they’re not 100% sure whether the chargebacks are being caused by criminal fraud.

“It’s sort of a shared hybrid merchant error, friendly-fraud type of chargeback, or it’s a classic case of first-party misuse or friendly fraud. One of the things that merchants can do to reduce chargebacks is increase the scrutiny for transactions and pre-transaction filters.”

Wright warned that merchants can be too aggressive when it comes to mitigating potential fraud, an approach that can produce a surge of false positives. Identifying the underlying causes that are contributing to the dispute problem is important. Some common causes can be attributed to shipping delays, a fault within the customer service process, or having a fraud liability.

“I’m particularly interested in the focus on wanting to win more, which I think is very reasonable,” Keyes said. “No one likes to lose in any situation, certainly not on chargebacks. But it makes a lot of sense. You ask merchants, what do you want the most? You’d like to win more of your cases. And I think that’s often a misunderstanding of how chargebacks function from the merchant perspective. Merchants want to have no chargebacks, they want no fraud, and to win every chargeback that does pop up the same way.”

“When you’re operating as a merchant, it’s unrealistic not to have some chargebacks,” Keyes added. “It’s unrealistic not to have fraud. And you need to accept that sometimes those things happen and sometimes you lose because things go wrong, and that’s normal. Your priority should be minimizing them in the first place and making sure they’re handled as effectively as possible.”

Chargeback Reduction Solutions

Three pre-chargeback resolution solutions are typically used on the market today: Chargeback Alerts, Network Inquiries, and Rapid Dispute Resolution (RDR).

Chargeback Alerts is a legacy system that enables merchants to avoid a dispute, provided they’re willing to refund the transaction. Merchants using this tool reported an average reduction of 27% in chargebacks.

As a newer tool—and provided that the merchant is enrolled—Network Inquiries ensures that the issuing bank can send a request to the merchant to provide additional transactional information that can help the merchant refute and represent the transaction. This information can be submitted in real time. According to Wright, the tool is very effective in reducing disputes, with an average reduction of 24%.

RDR uses the Visa network to automate refunds instead of receiving a chargeback. The merchant can set up rules and set up specific parameters, dictating which disputes to automatically accept and issue refunds to the cardholder. It’s a less expensive solution and is widely available to all issuers on Visa transactions. The average reported reduction after using this solution was 42%, the highest of the three chargeback reduction solutions.

Why Businesses Should Consider Chargeback Reduction Solutions

Although one can argue that fraud, and especially disputes, cannot be completely avoided or mitigated, it is important to implement solutions to reduce the incidences.

A dispute mitigation plan can help businesses put effective solutions in place that lower the incidences of fraud, regain losses, and prevent ongoing disputes.

The post Why Merchants Shouldn’t Underestimate Chargebacks appeared first on PaymentsJournal.

Help is on the way for merchants that are swamped with friendly-fraud chargebacks. Friendly fraud occurs when a customer makes a legitimate purchase, then requests a refund, often because the consumer has forgotten the transaction took place.

Visa is introducing its Compelling Evidence 3.0 rule set, which allows merchants to submit historical purchase evidence to prove a legitimate cardholder was behind an order. The rules are based on the assumption that if a cardholder has engaged in previous transactions with a business and those transactions were not disputed, then the current transaction is not fraudulent.

The new rules require the same data elements to match across undisputed and disputed transactions, with transactions using the same payment method and settled at least 120 days prior to the dispute. Importantly, the new system allows evidence to be submitted before a chargeback is filed. If certain elements are decisively proved, the fraud claim will be denied.

For merchants, this is all good news that is likely to reduce their chargebacks dramatically, but it also means they must get their data collection in tip-top shape to meet the standards of Visa’s new rules.

In a recent podcast, Navin Sequeira, VP Global Chargeback Operations at Chargeback Gurus, and Brian Riley, Head of Credit at Javelin Strategy & Research, discussed the size of the friendly fraud problem for merchants, how VISA CE 3.0 rules are going to change the lives of merchants, and how merchants can best prepare. This article provides some of the key highlights.

Friendly Fraud: The Nemesis of Merchants?

Friendly fraud is a growing issue for merchants, causing significant financial losses and reputational damage. This occurs when a cardholder disputes a legitimate transaction, often because of confusion or forgetfulness, but such disputes can also result from deliberate misuse of the chargeback system.

From the merchant’s perspective, if the same cardholder has made similar purchases in the past without disputing them, there is a good chance that the transaction in question is also legitimate. However, current Visa regulations don’t require banks to consider this evidence, making it easier for customers to commit friendly fraud.

“Estimates suggest that friendly fraud accounts for 60 to 80% of all chargebacks, which cost merchants approximately $40 billion annually,” Sequeira said.

The impact of friendly fraud is far-reaching, with costs including the value of the disputed sale, chargeback fees, administrative expenses, and lost revenue. Reputations can also suffer, particularly if chargebacks result from misunderstandings or mistakes, thus leading to increased scrutiny from payment processors and financial institutions.

“Focusing on that largest population (friendly fraud) really makes a big difference when you’re managing the fraud process and looking where the vulnerabilities are,” Riley said.

What is Visa CE 3.0 and How Will it Help Prevent Friendly Fraud? 

On April 15, Visa will introduce Compelling Evidence 3.0 (CE 3.0), the latest version of its CE process, which includes enhancements designed to help prevent friendly fraud chargebacks and remedy card-not-present fraud disputes.

To prove a dispute is associated with two previously undisputed transactions, sellers will need to provide three classes of evidence:

• Item descriptions and/or proof of merchandise or services provided.
•  Evidence of two previous transactions processed and settled between 120 to 365 calendar days before the current dispute.
• Data elements about the device used, including device ID or fingerprint and IP address, that match the two prior transactions. Other elements can also include login ID and delivery address.

Sequeira notes that using multiple data elements about the device used for payment is crucial in preventing chargebacks, as sometimes one data element is not enough to make a case.

“I could make the first order at home, and tomorrow I could make a second order at the beach with a different IP address,” Sequeira said. “If there is a chargeback, and the only device data element that is submitted is the IP address, Visa will say that’s not a match. But if device ID is also submitted, the picture becomes clearer.

While the exact impact of this new regimen is difficult to predict, it is reasonable to assume that the new rules will reduce chargebacks.

However, merchants need to put in considerable IT work to collect and store the required data for CE 3.0, then retrieve and pass on the data in less than two seconds to respective channels. With cost-cutting, layoffs, and macroeconomic factors, many merchants may not have the budgets to make these changes. As a result, many will partner with third parties to implement the system.

“Bringing in experts on this to deal with this important function within payments is really important,” Riley said. “It’s just like with taxes—do you want to do your own taxes, or do you want to deal with the IRS directly? The same thing applies here: Bringing in an expert makes a lot of sense, just as a normal course of business.”

To prepare for CE 3.0, merchants should determine if they have the necessary data elements to implement it, then work with their chargeback management company and IT teams to ensure compliance. Although the pre-dispute stage will not be more time-consuming with CE 3.0, the post-dispute stage could be if merchants do not upgrade their systems.

“If merchants do not have the ability to record all of these data elements and retrieve it when a chargeback comes in, it’s really essential for them to really strengthen what they’re doing,” Sequeira said.

CE 3.0 is designed to fight specific types of fraud, and not all merchants fit the bill. Furthermore, merchants can choose how much effort and money make sense to put in based on how many 10.4 (card not present) chargebacks they have.

“Merchants have to look at how many 10.4 transactions they have when compared to the rest of the results,” Sequeira said. “If it’s a small subset, if the dollar value is not very high, then they may want to continue with what they’re doing. But if they have a very large population of 10.4 transactions and the dollar value is high as well, they should evaluate with their IT and finance team putting into place a chargeback strategy.”

In any case, Visa is offering more tools for businesses to dispute certain kinds of chargebacks. So even if a merchant is not in a place right now where this solution is needed, it could be helpful in the future.

The post New Visa Chargeback Rules Are a Game-Changer for Merchants appeared first on PaymentsJournal.

In April 2023, Visa is set to update its requirements around reporting fraud, with the goal of reducing friendly fraud chargebacks and helping merchants retain more of their revenue. These new requirements, known as Compelling Evidence (CE) 3.0, let merchants bring evidence that contradicts cardholder fraud claims before chargebacks are filed. By sending in compelling evidence via Visa’s Order Insight platform, merchants can effectively block chargebacks from being initiated and prevent the advance of fraud claims.

CE 3.0 is based on the idea that if a cardholder previously made purchases that weren’t disputed from the same business, the current transaction that is being claimed as fraud really isn’t fraud. Under the new protocol, if a merchant can prove that the same customer data (such as device fingerprint and internet protocol, or IP, address) that are involved in a chargeback case are also associated with two previous transactions that were undisputed (with the same card and merchant), Visa will automatically deny the fraud claim. 

Furthermore, under the new guidelines, merchants can also submit this type of evidence after a chargeback has been initiated.  If a merchant responds to a chargeback in full compliance with the initiative guidelines, Visa guarantees the chargeback will be overturned. A ruling in the merchant’s favor will return revenue and reverse the original fraud claim.

A recent podcast hosted by PaymentsJournal sheds light on what the implementation of Visa CE 3.0 will mean for merchants, acquirers, and customers. Featured speakers in the podcast are Robert Painter, Sales Manager in the Dispute and Chargeback Management department at Kount, Domenic Cirone, VP of Acquirer Solutions at Midigator, and Brian Riley, Director of the Credit Advisory Service at Javelin Strategy & Research.

Before the update, merchants combatting fraud claims only had to provide one previous undisputed transaction, and it could come from any time. The new standards require providing two transactions, both being at least 120 days old. Companies that want to hit the ground running in April need to ensure they are collecting the customer information they need. The podcast, which was released on [ TBD  ], comes at a good time because it helps all parties understand how fraud claims will be resolved differently, and prepare accordingly.

Friendly Fraud and Visa’s Solution

Customers sometimes claim a transaction is fraudulent due to opaque billing information, general confusion, and lack of information. Sometimes they do so when there is a miscommunication about canceling a recurring payment. When a customer tries to cancel a subscription unsuccessfully and is billed for an additional few months, they can be tempting to call it fraud and have the issuing bank deal with it.

Such “friendly” fraud has become more common, partly because it has become much easier to file a fraud claim. “Back in the day, customers had to physically write to a billing dispute address, within 60 days on a credit card, and within 30 days for a debit card,” Cirone said. “Now, reporting fraud is easier to initiate. Customers are using the path of least resistance [to addressing unclear charges]. All they have to do is click on a checkbox that says this [payment] is unauthorized.”

Part of Visa’s new system is trying to differentiate between customer behaviors that have previously been treated the same way. The new Visa CE 3.0 initiative will enhance the taxonomy of fraud chargebacks, characterizing consumer disputes more exactly with a code for “I didn’t receive this” or “I canceled this three months ago, and they’re still billing me.”

“Visa has 28 different reason codes. A risk department can accurately analyze what the issue is with their merchant by seeing the individual reason code,” Cirone explained. “It’s a lot tougher with Mastercard because they only use four main codes. For example, Mastercard has a code which indicates a ‘consumer dispute.’ Well, what is it exactly? With Visa CE 3.0, the data will be more accurate.”

Improving the chargeback system will be helpful to acquirers, not just merchants. “Cleaning up that ecosystem of chargeback reason code so that we can start to define really what’s going on will be helpful,” Painter explained. “At the end of the day, the acquirer is really trying to keep their merchants in a position that they can grow their business and keep processing.” Having a more clear-cut fraud information system will help acquirers toward that. And, seeing as acquirers make money off every transaction they handle, the better the fraud transaction system, the more money they make.

These fraud developments will impact another group as well: fraud investigators. “The classification codes determine the workflow for [fraud investigators],” Riley noted. Having an improved fraud claim classification system, as well as weeding out claims in advance, will help banks focus their resources on the most egregious fraud claims.

“In the past, there used to be an adversarial relationship between merchants and financial institutions,” Riley said. “A lot of that’s changed. The financial institution wants the transaction because they’re going to make money from interest in the transaction. And the merchant certainly wants a sale. The realigning of interests is one of the reasons behind Visa enhancing its dispute process.”

As Visa CE 3.0 comes into play in April 2023, the future is bright. Merchants and acquiring banks should be thrilled and start planning their information collection systems so that they are ready to take advantage of the benefits of the program. Customers should be aware that less funny business is going to slip through when it comes to friendly fraud. But they may also be pleasantly surprised. Issuing banks will have more specific information about purchases to help confused customers make sense of their billing statements. It will all be interesting to watch next spring!

The post New Visa Chargeback Guidelines Will Be a Game Changer appeared first on PaymentsJournal.

The first of four myths I’ll dispel is that a retailer needs to purchase comprehensive fraud insurance, which is commonly referred to as a “chargeback guarantee.” Under this model, the insurance provider guarantees to pay the chargeback costs for any transaction they recommend to accept that ends in chargeback fraud.

This might seem enticing on the surface, as the vendor is accepting responsibility for chargebacks, returns abuse, Item Not Received abuse, and possibly more. However, the claim is largely false for the following (at least) five reasons:

The economics are typically not in the merchant’s favor

A merchant should use a chargeback guarantee to get fraud protection in a few extremely particular circumstances, such as:

• The company lacks the internal resources to consider or be in charge of fraud prevention.
• There is an ongoing dispute or fraud monitoring software within the company (with, for example, Visa).
• The company chargeback rate is higher than what issuers consider to be acceptable. The vendors would be better off with an uncovered agreement where they are still responsible for fraud

in almost every other circumstance. Why? Insurance suppliers make money as their costs are far higher than the chargeback costs (this also cracks the code of how Geico can afford Super Bowl commercials).

To put this into perspective, if businesses want a chargeback guarantee, they can pay a fraud insurance provider $10 million a year, or they can pay a technological platform $1 million a year and retain liability for $2 million in chargebacks. The significant difference between $10 million and $3 million can help companies save a lot of money.

The incentives for the solution provider may not align with company objectives

Chargeback liability is assumed by fraud insurance providers, therefore their main motivation is to reduce their risk by turning down more transactions. As a result, businesses can notice a reduction in approval rates along with chargeback rates, ultimately affecting the business’s bottom line. With this model, merchants are signing away important facets of the consumer experience when they agree to a chargeback guarantee.

Fraud prevention involves making choices that stop fraudsters from hurting organizations while nurturing legitimate customer relationships. It’s not only about lowering chargebacks. An uncovered agreement highlights this balance – between a chargeback and approval rate — to improve a company’s performance. While a chargeback guarantee only guarantees chargebacks, an uncovered agreement guarantees chargeback rate, approval rate, platform uptime, and decision speed.

The terms and conditions are never simple

One of the market’s biggest suppliers touts the ease of their “Guaranteed Fraud Protection Reimbursement Policy” as a selling point. The truth is more complex than that.

According to their terms and conditions, more than a dozen requirements must be satisfied in order to be eligible for a chargeback compensation. Following a tight procedure in the vendor’s portal, the merchant must submit proof of shipment, tracking numbers, proof of address match, mapping email addresses, and more within seven days. That is a timely process, which is presumably why this seller has a lot of 1-star evaluations from businesses whose chargeback requests were turned down.

The takeaway from this is clear: before signing any contracts, look behind the ‘guarantee’ glitter and make sure you comprehend the terms and circumstances (as well as read peer reviews).

Fraud insurance kicks the can on critical issues

The benefit insurance has is the certainty provided by transferring responsibility for policy abuse, such as abuse involving refunds and Item Not Received abuse. However, it does not address the fundamental issue: repeat offenders are not stopped. Instead, serial scammers are free to keep making purchases from retailers and return goods in violation of return policies or assert that they were never delivered.

Should this be taken advantage of, fraud insurance will eventually become more expensive, and should the business decide to assume that risk in the future, they will be inheriting a much bigger issue.

The fact is policy violators and fraudsters are fundamentally distinct groups that require different approaches. With the correct technology, the latter can be easily detected and prevented; for repeat offenders, the policy can even be changed in real-time. For instance, a customer who has previously reported an Item Not Received can make a purchase with a delivery signature demand thanks to the adjustment of unbiased technology. In conclusion, fraud insurance only serves to conceal issues with policy abuse when a true fix is required.

Fraud insurance is NOT a sustainable business model

Companies that offer chargeback guarantees have been openly challenged by shrinking margins. As one publicly traded vendor started to insure merchants working in higher-risk industries, their profits decreased from 53% to 46% year over year.

“Margins are the provider’s problem; what does that have to do with me, the merchant?” is a legitimate objection. So, for continuity, you need your supplier to be profitable and in good health. When under a financial strain, they will have to cut expenses in order to keep their margins. As a result, there will be less money spent on marketing, business success, and R&D, which will hinder innovation.

In the end, you want to make sure you are aligning yourself with a market leader that has solid foundations because you are placing important decisions in their hands. You should not take on the danger posed by the short-term business models of fraud insurance providers.

The post Fraud Myth Busters Part 1: Comprehensive Fraud Insurance Will Fix Everything appeared first on PaymentsJournal.

American consumers have long used their buying power as a political weapon. From the free-produce movement of the early 1800s, which boycotted goods produced with slave labor, to the modern Fair Trade movement, shoppers have used their wallets to coax or coerce businesses into changing their behavior.  

In today’s plugged-in and hyper-partisan climate, grievances can snowball and consumers can organize as fast as they can refresh their internet browsers. And while boycotts remain a common tactic, consumers are increasingly looking for new, more effective ways to inflict pain on companies that offend them.

One key tactic that is now emerging is the possibility of “chargeback-tivism”, in which customers dispute financial transactions to punish companies with which they’ve previously done business. To cope with this threat, companies must start looking beyond PR strategies, and putting systems in place to monitor and manage a potential flood of improper chargebacks. 

Weaponizing chargebacks

Since the chargeback system was first introduced, disgruntled consumers have been venting their frustrations by disputing transactions, regardless of whether or not they’re actually entitled to a chargeback. Now, though, we’re seeing a new pattern of coordinated chargeback activity as part of online protests.

Consider, for instance, Canadian truckers’ recent protest against COVID-19 restrictions, which led to supporters donating $10 million to the demonstrators through the crowdfunding platform GoFundMe. When the platform blocked the fundraising campaign, stating that the protest violated its terms of service by promoting violence, the protest’s supporters took to social media to urge donors to initiate chargebacks for their GoFundMe donations.

That might not sound like a big deal: after all, GoFundMe was already planning to refund all the donations it had received. But chargebacks — especially coordinated chargebacks — place an enormous strain on businesses, from the cost of gathering information and processing disputes, to the direct cost of fees associated with a chargeback. 

If a merchant is hit by too many chargebacks within a given period, in fact, they can lose their merchant account and be left with no ability to process transactions. That is unlikely to happen to a big player like GoFundMe, of course, but it is a reminder that organized chargeback campaigns do have the power to cause real pain to modern businesses. 

From disputes to protests

In many ways, the rise of chargeback-tivism is the culmination of a trend that has been playing out since the transaction dispute system was first introduced via the Consumer Protection Act of 1968. Intended to shield credit cardholders from fraudulent transactions, the dispute system served its intended goal: cardholders can use it to dispute charges through their credit card issuer to get transactions reversed. 

But as consumers have grown more aware of the chargeback system, many have also begun to employ disputes if they are simply unhappy with a purchase, or want to sidestep the perceived hassle of using a merchant’s returns process. Along with organized criminals who use the chargeback system as part of account takeovers and related fraudulent activities, such “friendly fraud” disputes are now a major expense for businesses, which lost a total of $28.58 billion to payment card fraud in 2020, according to the Nilson Report.

Since the COVID-19 pandemic began, e-commerce sales have skyrocketed as many more consumers have opted to do their shopping online while stuck at home. That has necessarily increased the proportion of purchases made using credit and debit cards, and thus merchants’ exposure to chargeback risks. 

Now comes the potential for chargebacks to be used as part of collective political action, leaving companies vulnerable to potentially devastating consequences. To avoid penalties, fines, and even the possibility of losing their merchant accounts, sellers need to come up with a strategy for dealing with this new threat.

Defensive measures 

To defend themselves against organized chargebacks, companies can use a variety of preventative and dispute-management measures, saving money and time in the process:

• First, streamline your refunds process. If you have a clear returns policy and put money back in customers’ hands quickly when an order is canceled or a refund request is made, you dramatically reduce the scope for chargebacks of all kinds. A chargeback alert service can help here, at least in the short term, by allowing you to intercept disputes and proactively issue refunds before customers initiate chargebacks.
• Next, ensure you have clear visibility into your chargebacks process. If you are handling chargebacks manually, it is easy to get swamped by a sudden influx of organized, politically motivated disputes. Look for a system that lets you track and stay on top of chargebacks without drowning your team in paperwork.
• Finally, put a robust — and, crucially, scalable — mitigation system in place to ensure that disputes can be managed quickly and efficiently, no matter how many come flooding in. Many in-house mitigation teams struggle in the face of their existing workload, so look for systems that can automate as much as possible of the dispute process while still giving you the customized tools and services you need to win.

The bottom line is that the mechanics of mitigating against organized chargeback campaigns is no different than mitigating against conventional “friendly fraud” disputes — but organized chargeback-tivism can lead to far more disputes being filed, overwhelming your team at a time when you have no margin for error. 

But while the principles of self-defense remain the same, weaponized chargebacks constitute a major stress-test for even the best mitigation infrastructure. With the potential for extraordinarily high volumes of chargebacks over a short period of time, such protests will expose any weaknesses in your mitigation strategy, and bring new challenges — and important learning opportunities — for both merchants and issuers alike.

Don’t sleep on chargeback-tivism

Most organizations, of course, will never face a chargeback campaign on the scale of the one that recently affected GoFundMe. But the fact that such campaigns are happening at all is a reminder that consumers are increasingly viewing chargebacks simply as a standard part of their purchasing behavior.

To minimize risk and succeed in a world of ubiquitous chargebacks, organizations need a clear strategy for managing transaction disputes in a smart, scalable, and resilient way. You may never run into a chargeback-tivism campaign — but put the right infrastructure in place now, and you’ll minimize the impact of chargebacks on your business, and protect your revenues from chargeback risks of all kinds.

The post Is Your Business Ready for ‘Chargeback-tivism’? appeared first on PaymentsJournal.

While chargeback fraud is not a new phenomenon, the continued growth of digital commerce has many online businesses rethinking how to improve their chargeback fraud prevention measures. Retailers worldwide lose billions every year due to chargebacks, and a significant and growing portion of them are a result of chargeback fraud. However, it doesn’t have to be that way if businesses are proactive about implementing the right prevention strategies.

Chargeback fraud can be defined as when an individual deliberately disputes a legitimate payment transaction resulting in a chargeback for the company where the sale was made. Instead of contacting the business where they placed the purchase, the customer goes through the issuing bank or payment processor. They essentially steal an item or multiple items using the chargeback process, resulting in lost revenue for the business. However, a negative impact to the company’s bottom line isn’t the only consequence of this fraudulent activity. Retailers who have a high chargeback rate risk getting hit with high fees and penalties from credit card networks like Visa, Mastercard, and American Express. If an online merchant’s chargeback rate remains too high for too long, it risks getting relegated to one or more chargeback monitoring programs. Every chargeback monitoring program a retailer enters brings additional costs on top of the fee for every chargeback. Most notably, continuing to have a high chargeback rate despite monitoring, could result in the business losing their ability to accept credit cards as a payment option altogether. 

What Can You Do About Chargeback Fraud?

Every online business faces chargebacks, and most credit card networks today deem a chargeback rate between 0.9%-1.5% of transactions as an acceptable threshold. Significantly reducing chargeback fraud not only lowers your overall chargeback rate, but it captures more legitimate revenue. Here are the top three ways you can better protect your business from the growing threat of chargeback fraud:

1) Use Strong Authentication Tools

You can help reduce chargebacks by using strong authentication tools, such as:

• Multi-Factor Authentication (MFA):  If any of your customers find that their accounts — with stored payment methods — have been taken over and had orders placed without their consent, they’ll file chargebacks. Requiring customers to enable multi-factor authentication (MFA) for account logins can help prevent fraudsters from taking over customer accounts and placing unauthorized orders. You can implement MFA on your website using technology like 3D Secure (3DS). The key is to avoid applying 3DS to all transactions, since that adds friction. Instead, apply it when necessary to authenticate a shopper or meet a regulatory requirement.

• CVV Validation: Fraudsters often obtain stolen credit card numbers from dark web marketplaces or phishing scams. However, they don’t always have the card verification value (CVV or CVV2) number from the back of the card. You should always require customers to enter the CVV number at checkout and use a reliable tool to validate that number.

• Address Verification Service (AVS): An address verification check is another way to validate credit card information, helping to detect suspicious payment transactions. An address verification service (AVS) looks at the billing address entered by the user, and makes sure it matches the address on file with the issuer of the credit card. Before implementing this tool, be sure to confirm that AVS checks are supported by your credit card companies and country.

2) Add Real-Time Chargeback Fraud Decisioning to Your Platform

You can also reduce chargebacks by incorporating real-time fraud decisioning into your platform. With real-time decisioning, your eCommerce platform can make accurate fraud decisions before the user goes through checkout and payment authorization. If the decisioning engine has access to a global network of merchants, it can assess the identity behind each transaction. With insight into the user’s identity, the engine can accurately predict which transactions will likely result in chargeback fraud and block them. A bad actor can’t initiate a chargeback if they don’t make it through the payment process.

3) Balance Fraud Prevention and Approval Rate

In response to the risk of chargeback fraud, many merchants turn to a vendor for chargeback protection—essentially, purchasing insurance for fraud losses. Shifting liability for these losses has a lot of appeal, but it can introduce incentive misalignment. For example, the chargeback protection vendor has an incentive to decline borderline transactions—if they prove fraudulent, the vendor assumes the risk. So, oftentimes purchasing chargeback protection can impact approval rate, which is in conflict with a merchant’s motivation.

The key is to identify a solution provider that can optimize the balance between fraud prevention and transaction approval rate—identifying and blocking fraudsters at critical points along the digital commerce funnel, while ensuring legitimate customers can complete their purchases. Ultimately, this is how leaders across industries will reduce losses, increase revenue and deliver positive customer experiences.

The post The Top 3 Ways to Protect Your Business from Chargeback Fraud appeared first on PaymentsJournal.

Over the last two years, you will have noticed that the world has a serious supply chain problem. Empty grocery store shelves and skyrocketing prices for everything from everyday essentials to games consoles has heightened the issue. How is this affecting chargebacks?

The term ‘Chain’ is important here because what happens at one part has knock-on effects further down – including a likely increase in chargebacks. If customers are not getting the goods they order on time, then many will initiate a chargeback, which will end up costing significantly more than a refund and could contribute to your company being charged more for every transaction.

Here, I’ll explore where the supply chain crisis has come from, how is it affecting chargebacks and what can be done to stop it from affecting your business.

Where has the supply chain crisis come from?

Some of the first places hit hard from the COVID-19 pandemic were major manufacturing centers – China, Vietnam, South Korea, and Taiwan. Factories at these locations shut down or slowed down production and the shipping companies who take their finished goods across the world also slowed down operations in anticipation of less demand.

In other sectors there was clearly decreased demand – restaurants, bars and vacations were all almost non-existent for several months early in the pandemic. However, there was a huge spike in demand for other types of consumer goods – workers buying office equipment for their homes, those deciding to renovate their homes or start new hobbies, families buying new televisions or game consoles to stave off boredom. This should have resulted in factories and shipping companies increasing production to meet the new demand, but a short period of decreased demand meant a bottle neck in the international shipping system, with even the containers used to ship goods across the world being in short supply. The cost of shipping skyrocketed, and the sudden influx of ships overwhelmed the capacity of ports like Los Angeles and Oakland at a time when dock workers and truck drivers were also in short supply due to the pandemic.

This was compounded by decades of lean Just-in-Time logistics practices meaning there was little in the way of warehoused goods to fulfil demand, meaning that the crisis is still ongoing.

How is it affecting chargebacks?

Those companies that rely on shipping physical products to customers will be affected by the supply chain crisis. And not just those that send products overseas – domestic shipping has been affected by increased demand and fewer delivery drivers. Inevitably, this means that customers will be getting their products later or not at all. Although many will contact merchants directly to resolve issues, some will simply initiate a chargeback. ‘Goods not received’ chargebacks are meant to be used if merchants refuse to refund customers for goods that are not delivered, but too many consumers consider it a first-line solution to their problems, largely because in most cases chargebacks are highly likely to get their money refunded.

Having a surge of chargebacks at a time when there are serious supply chain issues could be devastating for many merchants. They cost significantly more than refunds, include fees levied by the acquiring bank and take time to process, particularly if you intend to dispute them. Should your company receive enough chargebacks your acquirer may decide that your company is risky, and will therefore increase their processing fees, meaning that every transaction will cost more.

What can you do to stop chargebacks affecting your business?

The first fix is to offer robust, easy to use package tracking for all your deliveries. Even if you have to pay more for this service, you are likely to find that it will save money overall. Furthermore, you should make sure that requesting a refund for an item that does not arrive is easy. If customers can request refunds easily then they will choose that option over the relatively more difficult process of initiating a chargeback. Refunds are not ideal, but they are preferable to chargebacks. If your company is experiencing delivery delays, then perhaps send an email to customers outlining what they should do if their package is delayed. Finally, investigating chargebacks to identify those that were legitimately filed also provides vital feedback that can be used to provide insights for improvements and help reduce repeat issues.

The post What Does the Global Supply Chain Crisis Mean for Chargebacks? appeared first on PaymentsJournal.