Compelling Evidence 3.0: Your new chargeback defence
In the ongoing fight against chargebacks, Visa’s latest Compelling Evidence (CE) 3.0 has officially entered the playing field. Let’s find out what this means for your business.
Chargebacks are on the rise
Cutting straight to the chase, Visa/Verifi has recognised a rising need to provide enhanced protection to shield merchants against the surging levels of fraud.
Measures need to be taken to combat the recent 30% increase in card-not-present (CNP) disputes. While it was to be expected that the huge surge in CNP Visa sales over the last few years would naturally lead to a rise in chargeback claims, it’s likely that the majority of these are not actually fraudulent. Instead, the cause seems to be down to ‘friendly fraud’; sometimes referred to as ‘named first-party misuse’.
What is friendly fraud?
Let’s quickly refresh ourselves on what friendly fraud actually is. Friendly fraud is a type of ‘false fraud’, and often arises when customers dispute a transaction they no longer recognise on their statement.
Purchasing digital goods is now so common it’s easy to lose track of every purchase and second-guess the source. Unfortunately, this backfires on the merchant who then has to cover the resulting chargeback costs. Customers may also deliberately exploit chargeback policies, attempting to claim fraud while holding on to the purchased product. This is essentially stealing!
Enter CE3.0: The solution for merchants
So, in a nutshell, friendly fraud is not something you should have to take liability for. This is where CE3.0 comes in. CE3.0 serves as the most recent update to the compelling evidence framework, designed to combat the unjustified chargebacks outlined above. With the worrying rise in friendly fraud disputes and subsequent low success rates for merchants, there’s now an urgent need for more robust mechanisms to fight these chargebacks fairly. Visa has introduced CE3.0 to tackle these challenges head-on.
What is compelling evidence?
Simply put, compelling evidence refers to the documentation that merchants must provide to refute a cardholder’s claim of a fraudulent transaction. In the case of friendly fraud, these chargebacks typically fall under reason code 10.4, Fraud-Card Absent Environment. A reason code is just a way of informing merchants why a customer has disputed a purchase. To overturn these claims, merchants must provide specific evidence to demonstrate the legitimacy of the disputed transaction.
What is Compelling Evidence 3.0?
Prior to CE3.0 there were already rules in place to help fight against chargebacks. CE3.0 aims to establish a more effective strategy that significantly improves merchants’ odds of winning ‘false fraud’ claims. The key difference is this:
CE3.0 guarantees a favourable outcome against chargebacks if you can provide proof of at least two previous undisputed transactions associated with the cardholder.
NOTE: CE3.0 can only provide protection for pre-disputes and disputes under reason code 10.4, Fraud-Card Absent Environment.
What are the benefits of Compelling Evidence 3.0?
You might still be wondering how this alteration will really make a difference to your business. Let’s break it down a bit further into the main benefits CE3.0 brings:
- It will strengthen your defence prior to chargebacks by linking previously undisputed transactions, increasing your chances of winning friendly fraud disputes and reclaiming lost revenue.
- CE3.0 can prevent some chargebacks from happening full stop. They’ll never reach the dispute stage and affect your chargeback ratio.
- The new requirements work in favour of the merchant, as previous evidence of non-disputes can now remain compelling beyond a certain cut-off point.
In essence, CE3.0 is a smarter tool that can shift liability away from you and onto the issuer, while simultaneously reducing operational costs, preserving revenue and maintaining low fraud and dispute ratios.
However, like any set of rules, there are qualification criteria you’ll need to meet to benefit from CE3.0:
How do I qualify for CE3.0?
The first thing to keep in mind, as previously mentioned, is CE3.0 protection only applies to chargebacks categorised under reason code 10.4, Fraud-Card Absent Environment.
Then, as stated by VISA/Verifi, you’ll also have to meet both the below criteria:
- Present evidence of a minimum of two transactions on the same payment method that were settled at least 120 days before the dispute date. Transactions previously disputed as fraud are not eligible.
- Ensure at least two of the core data elements match between prior transactions and the disputed transaction, with one of the two being either the IP address or Device ID. Core data elements include User ID, IP Address, Shipping Address and Device ID.
In summary, Compelling Evidence 3.0 empowers you, the merchant, with a distinct advantage when it comes to dealing with friendly fraud cases. By diligently collecting the evidence necessary to bolster your case, you can expect to win more disputes and strengthen your position against potential future chargebacks.
