Preparing for Visa Compelling Evidence 3.0

Visa is planning to shake up the chargeback process with new compelling evidence rules for fraud disputes with Reason Code 10.4: Other Fraud – Card-Absent Environment. The rules which will take effect in April 2023 are meant to reduce the volume of friendly fraud occurring over the card network. However, Visa Compelling Evidence 3.0 rules are demanding to fulfill to the extent that it’s unclear whether they will be able by themselves to arrest the dramatic growth in chargeback fraud.

With several credit card schemes, changing regulations and thousands of issuing banks - keeping track of the changes to chargeback rules all alone is impossible. Justt is here to help, with a new guide for Visa's Compelling Evidence 3.0 rules for fraud disputes.

A new way to address Visa fraud chargebacks

The new rules would allow merchants to show at least two undisputed transactions from the same cardholder that occurred over 120 days prior with similar characteristics to prove that the current charge in dispute is valid and does not warrant a chargeback.

The underlying logic is that the cardholders usually have 120 days to file a chargeback. If the issuing bank does not flag a fraudulent charge within this timeframe and file a chargeback then it is their responsibility not the acquirer or merchant’s.

Visa will look at four core data elements in the transactions to determine the validity of the disputed transaction:

• Cardholder’s IP address
• Device ID
• Email address or account login ID
• Physical shipping address

Of these four data points, two must match to prove transaction validity and one of the two data points that matches must either be IP address or device ID.

Different paths to winning: pre-chargeback and post-chargeback

There are two ways merchants can submit this evidence: either pre-chargeback using Visa Order Insight or post-chargeback via their acquirer or PSP. The main benefit of implementing this defense through Order Insight is that it provides effective chargeback prevention, with the confirmed transactions blocked from becoming chargebacks and prevented from counting towards the merchant’s chargeback ratio.

Of course, using Order Insight means a merchant pays additional fees, so there is no guarantee that the merchant saves money as compared with the chargebacks fees they would pay by handling it post-transaction. However, preserving a chargeback ratio below the chargeback monitoring threshold is super important, so if there is a risk of exceeding it, Order Insight becomes a very valuable tool. If a merchant exceeds Visa’s threshold chargeback-to-transaction ratio of 0.9 percent and 100 chargebacks per month then they will pay significantly more in chargebacks and additional fees than if they had just refunded the transaction using Order Insight.

There is a difference in how Visa Compelling Evidence 3.0 is implemented pre- and post-chargeback. As part of Order Insight, Visa will automatically pick in real-time five transactions with the same merchant-to-cardholder pairing that are over 120 days old and undisputed. The merchant will be able to pick two of these five transactions as data reference points to show that the current transaction in question is legitimate.

Post-chargeback, merchants have 30 days to respond and are allowed to pick two transactions from an unlimited number of previous transactions over 120 days old from the merchant-to-cardholder pairing to prove the validity of the recently disputed transaction.

Regardless of whether the compelling evidence is submitted pre- or post-chargeback, cases that are covered by the new rules will not count towards the merchant’s fraud ratio for the Visa fraud monitoring program.

How can you beat Reason Code 10.4 chargebacks today?

Today, Visa allows you to challenge a fraud chargeback if the cardholder’s IP address, email address, physical address and telephone number match a previous transaction that was processed unchallenged. However, this does not guarantee that you win the dispute. It is necessary but not necessarily sufficient to win the dispute.

The Visa Compelling Evidence 3.0 rules will not replace the existing system but will be in addition to them. Their main value is that by matching the required data point you will automatically win the chargeback dispute.

Who benefits?

Subscription and recurring payment-based merchants will be among the major beneficiaries of the rule changes described above since they rely on multiple payments older than 120 days. Businesses that rely primarily on one-time customers won’t see much change in their chargeback volume as a result of Visa Compelling Evidence 3.0.

The design of the new Visa Compelling Evidence 3.0 rules is slanted towards improving the value proposition of Visa Order Insight to merchants. Justt already works with Visa’s Verifi subsidiary to provide this and other chargeback protection tools to clients as needed. However, it’s likely after the rule change in April 2023 that more merchants will wish to take advantage of the Order Insight tool, especially those that see many disputes falsely categorized as fraud (Reason Code 10.4).

What does Visa Compelling Evidence 3.0 mean for merchants?

It's important to mention that when unveiling the announced changes Visa emphasized that the update was just part of a large multi-year process the credit card giant is undergoing as it helps merchants to tackle the phenomenon of friendly fraud.

Visa first introduced the concept of compelling evidence in 2013, when it began the sharing of data elements, like IP address, email, device ID, etc. It’s since taken a number of steps to shore up efforts to fight chargebacks, including but not limited to the acquisition of Verifi, a chargeback deflection service, in 2019, and the upcoming implementation of Compelling Evidence 3.0 set for 2023. Clearly, Visa is responding to the market – a market that has seen the rapid growth of chargebacks and friendly fraud over the past decade.

It's not alone in this. Next month Mastercard is implementing new rules for subscription payments. In its documentation explaining the changes, Mastercard made clear that the motivation was the fact that 60 percent of the chargebacks it sees are for recurring payments.

Where Justt fits in

The major card networks are trying to tackle the growing chargeback problem. However, they haven’t really addressed the issue with the benefit of state-of-the-art technology. Justt combines machine learning and automation with industry expertise to take chargebacks off merchants’ hands and win the vast majority of them. Thanks to our artificial intelligence our solution is constantly seeking to optimize your win rate and return more money to you, learning from each decision to better pick and present the evidence for the subsequent chargebacks cases.

Perhaps the best part, we transform a resource draining manual process that isn’t core to almost any merchant’s business into a risk-free way to recover revenue. It’s risk-free because we operate based on performance-based pay only. That means we earn, only when you earn.

Need help preparing for Visa Compelling Evidence 3.0? Contact us at Justt and we’ll walk you through the process to improve your win rates.