What will Visa’s Compelling Evidence 3.0 mean for your business?

First party misuse / abuse (also called ‘friendly fraud’) can be a costly nightmare for merchants!

First party misuse is also on the rise and seen as the third biggest problem in ecommerce ⁽¹⁾. Coming in April 2023, Visa is set to introduce new and updated standards for compelling evidence for use against fraud chargebacks and disputes known as” Compelling Evidence 3.0”. This article examines what it will mean for your business.

The issue of first party misuse

Approximately 28% of ecommerce revenue is lost annually to first party abuse (MRC Global Fraud Benchmarking Study). ⁽²⁾

First party abuse is called this because fraudsters often use their own identities rather than concealing them as third parties. A huge portion of digital fraud comes from consumers themselves abusing chargeback policies, promotions, returns or merchant policies and attempting to obtain free merchandise or pay-outs. This activity costs merchants upward of €90 billion per year, according to a recent PYMNTS study. ⁽³⁾

And while a proportion of consumers do forget that they’ve taken out a subscription, or genuinely don’t recognise your business’s name on their credit card bill, many know that that they made the transaction or did indeed receive the product and so the claim is fraudulent.

As a result, first party abuse can be a significant cost to your business – both in terms of the time spent dealing with it, and the actual cost of the refund, shipping, loss of revenue or transaction fee.

Rising chargeback volumes for 51% of retailers

In a recent Javelin survey of online retailers, 51% reported an increased volume of chargebacks, but only 49% achieved an increase in win-rates. So, while chargebacks are rising, merchants don’t always have the tools and insights needed to increase their win rates. ⁽⁴⁾

What does compelling evidence mean now?

Right now, if you receive a chargeback under Visa’s Reason Code 10.4 (Fraud – Card Absent Environment), ⁽⁵⁾ where the cardholder claims they didn’t authorise or participate in the transaction, you have two choices. Accept it and refund the customer or fight it through chargeback representment. Neither are ideal, of course: both cost money and time and, in general, banks and credit card companies tend to side with the customer.

If you want to fight it, you’ll have to gather and present what current Visa guidelines define as ‘compelling evidence’, that is ‘the act of providing proof the cardholder participated in the transaction, received the goods or services, or benefitted from the transaction.’ ⁽⁶⁾

That could be at least one transaction from any period where the IP address, email address, physical address, and telephone number match the details of the disputed transaction. The regulation is of a complex nature and if the transaction relates to digital goods, two or more of the IP addresses, geographical location, device ID number, name of device and the purchasers name and email linked to the customer profile or email addresses must match. ⁽⁷⁾

But even if you provide this evidence, the dispute isn’t over. The cardholder’s issuer can ask the cardholder if they want to persist with their claim. And if they say yes, and provide a reason for doing so, the claim carries on – and the merchant is responsible.

What are the CE3.0 changes? 

CE3.0 adds a new compelling evidence type and also modifies two existing ones by widening the definition of what counts as compelling evidence in disputes filed under Reason Code 10.4. From April 15, 2023, to counter a dispute, compelling evidence must now include two of the following, along with the customer account login and delivery address:

• Two prior non-disputed transactions that the customer has made with you, which must be greater than 120 days old. These must use the same payment card as the disputed transaction.
• Those previous two transactions and the disputed transaction must match two data elements out of the following: user account, IP address, shipping address, login ID, device fingerprint and device ID.
• Out of those two data elements, one must be either device fingerprint, IP address or device ID. ⁽⁸⁾
• You can provide this evidence by using the Visa solution, Verifi’s “Order Insight”, before the chargeback is registered, or via your acquirer or payment service provider after the chargeback is registered.
  
  

How to prepare for CE3.0

Using Order InsightTM, you’ll be able to identify and share that data rapidly once a customer starts a dispute, and hopefully stop it in its tracks. You’ll need to ensure that you have the technology, such as device fingerprinting, and solutions in place to collect all the relevant CE3.0 data elements.  Find out more about Accertify’s Device product and how it can help prevent First Party Abuse by analyzing devices and associated identities transacting across digital channels via mobile applications (InMobile) and mobile and desktop browsers (InBrowser).

“Dealing with increasing levels of first party mis-use is an additional challenge which merchants simply don’t need,” says Ronan LeMestre, Director Client Success, EMEA at Accertify. “It’s our hope that CE3.0 will encourage more measures by card providers to combat first party abuse – and tip the dispute balance back in favour of merchants.”

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Sources:
1. 11 April 2018, The many faces of friendly fraud, The Paypers
2. 11 April 2018, The many faces of friendly fraud, The Paypers
3. July 2022 PYMNTS Merchants Walk Fine Line Policing $90B of Promotions Abuse
4. Javelin Survey 2021 – Merchant Chargebacks: Building Brand Value by Optimizing Efficiencies
5. Visa Report - Dispute Management Guidelines for Visa Merchants p28
6. Visa Report - Dispute Management Guidelines for Visa Merchants. Definition of compelling evidence (see Section 5, Defining Compelling Evidence)
7. Visa Report - Dispute Management Guidelines for Visa Merchants. Page 54-55, section 4.
8. Visa Report - Evolution of compelling evidence

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This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.

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