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!
