In response to the recent trend where 50% of disputes are deemed as friendly fraud, major card schemes such as Visa and Mastercard have been compelled to take action. Visa, leading the charge, has introduced "Compelling Evidence" as part of its strategy to combat this surge in deceitful claims. This move reflects a proactive approach by financial institutions to safeguard both merchants and consumers against the ramifications of friendly fraud disputes. By implementing such measures, Visa aims to enhance the integrity of transactions while ensuring a fair and transparent dispute resolution process.
In April 2023, Visa updated its rules around transaction disputes with the introduction of Compelling Evidence 3.0, part of its ongoing effort to make it easier for merchants to tackle friendly fraud.
In essence, Compelling Evidence 3.0 allows merchants to use a cardholder’s purchase history to prove that the disputed transaction is legitimate. This expands the scope of, and specifies, what data can be used as evidence in disputes, helping merchants to reduce chargebacks, and protect their revenue.
This article explains what Compelling Evidence 3.0 is, how it works, and the benefits for merchants.
What is Visa Compelling Evidence 3.0 (CE3.0), and why is it important?
Visa Compelling Evidence 3.0 (CE3.0) improves and refines the guidelines around challenging disputes flagged with the fraudulent reason code 10.4, allowing merchants to share, in real-time, two previous transactions that prove that a disputed transaction was in fact legitimate.
All cardholders are entitled to dispute a charge if they suspect that it is fraudulent. However, in some cases, the cardholder may be either deliberately or inadvertently disputing a legitimate transaction. As the merchant, you have a chance to challenge friendly fraud disputes by providing compelling evidence that the charge is invalid.
Visa defines compelling evidence as proof that the cardholder participated in the transaction. Until now, however, in an effort to cater to a variety of scenarios, the rules around compelling evidence were vague and not necessarily weighted in the merchant’s favor.
This is a problem because, If a merchant is unable to provide sufficient proof that a transaction was in fact legitimate, they don’t just lose out on revenue, but must also pay fees to the bank to cover the cost of processing the claim. Additionally, if a merchant's dispute ratio passes a certain threshold, they could be placed on Visa’s Dispute Monitoring Program (VMDP) and Visa’s Fraud Monitoring Program (in cases of fraud), which could result in fines and even banishment from Visa.
You can benefit from CE3.0 at post-dispute, via the representment process. CE3.0 gives greater chances of winning the dispute and removes the impact on the fraud ratio. However, it is important to note that you may still have to pay chargeback fees, and the dispute still counts towards your chargeback ratio.
How does Visa Compelling Evidence 3.0 work for merchants?
The new rules for CE3.0 allow merchants to share two previous transactions that provide proof of a purchasing history between them and the cardholder, which Visa defines as a ‘historical footprint’. At Checkout.com, merchants are able to submit this compelling evidence at the post-dispute stage.
If the dispute has already been escalated to a chargeback, you must challenge it via the representment process. To do this, you must identify and submit two eligible historical transactions to your acquirer via the checkout.com dashboard or API, who will respond on your behalf via Visa Resolve Online (VROL).
These two historical transactions must meet the following criteria:
- They must be between 120 and 365 days older than the date of the disputed transaction (the 120 day limit does not apply if the other undisputed transactions were original credit transactions)
- They must both be undisputed and not have been reported as fraudulent
- At least two data elements (User ID, IP address, shipping address, device ID / fingerprint) must match across all three transactions, and one of these two must be the IP address or device ID or fingerprint
If validated, the chargeback will be reversed and while your dispute ratio will be affected, your fraud ratio will remain the same.
In order to use CE3.0 to tackle disputes effectively, merchants should remember to:
- Collect sufficient payment data - including device information and IP addresses
- Use consistent billing descriptors - the transactions you submit as compelling evidence must match the disputed transaction, so make sure that the first six characters of your billing descriptors are identical for every transaction
Which disputes are eligible for Visa Compelling Evidence 3.0?
CE3.0 applies only to disputes that use Visa reason code 10.4: Other Fraud: Card-Absent Environment. This reason code could indicate two things. Either that:
- The cardholder did not authorize or participate in a card-not-present (CNP) transaction
- Or that a fraudulent CNP transaction was completed using an invalid account number or without authorization
The 10.4 reason code is often related to first-party or friendly fraud transactions.
Advantages of Visa CE3.0
Visa CE3.0 has a range of advantages for merchants, including:
- Keeps your fraud rates down - fewer chargebacks will help to prevent unfairly elevated chargeback and fraud rates, which could be viewed unfavorably by Visa and payment processors
- Prevents loss of revenue - by giving a compelling way of representing friendly fraudulent disputes, you save your business from lost revenue and associated fees
- Streamlines representment - CE3.0 rules make the representment process quicker and easier
- A reliable way of representing friendly fraud disputes based on data evidence to avoid ambiguity and save time.
Visa Compelling Evidence 3.0 and Checkout.com
Checkout.com offers a number of products that can help you challenge fraudulent disputes, reduce chargebacks, and protect your revenue.
Authenticate your customers' payments with 3D Secure to reduce fraud and meet regulatory requirements. With 3DS, you can embed the authentication process in your checkout flow, making for a better user experience.
Our product Intelligent Acceptance promptly determines whether a transaction necessitates 3DS authentication and automatically incorporates any available 3DS authentication information into the payment request if it was omitted initially. This ensures compliance by making sure the transaction meets the required authentication standard and reduces fraud.
Additionally, Fraud Detection Pro, which is built into our platform, will identify and block suspicious transactions from ever occurring, protecting your business from fraud and resulting chargebacks while increasing your acceptance of legitimate transactions.
Our Rapid Dispute Resolution product, offered in partnership with Verifi, automatically resolves Visa transaction disputes before they become chargebacks. It does this by quickly issuing a refund to cardholders for disputes that meet criteria defined by you, helping you to save time and money, and improve your customer experience.
If you’re an existing merchant of Checkout.com, you can find out more about Visa Compelling Evidence 3.0 on our support page.
