The Visa Compelling Evidence 3.0 initiative is a game-changing move in the payments space.
In simple terms, the new ruleset is a way for merchants to avoid Visa fraud chargebacks (those chargebacks filed using Visa reason code 10.4). This applies only to those merchants who are signed up to use the Order Insight platform.
To illustrate, let’s say a buyer disputes a charge, claiming it was fraud. However, the merchant in question is enrolled in Order Insight. The bank will automatically pull up previous transactions that the buyer has with the merchant. If key pieces of data from those previous transactions match the disputed charge, then the dispute may be denied, and no chargeback will be filed.
Why is this upgrade really necessary, though? And more importantly, does it work?
What’s at Issue?
According to a startling new report, around 19% of consumers now view first-party fraud as socially acceptable. 23% believe it can be justified in certain situations.
This problem is even more pronounced among younger consumers. One out of every five Gen-Z individuals showed a lack of ethical concern about first-party fraud. And, over half of them admitting they would engage in it without fearing any negative consequences.
Clearly, reliance among financial institutions on an honor system to deter this sort of behavior is proving ineffective. As we are all no doubt aware by now, the consequences of first-party fraud extend beyond retailers. The problem affects community banks, payment processors, and online lending companies, with broader ramifications for the market as a whole.
To my mind, it’s pretty obvious that proactive measures are urgently needed. Finding a viable solution that suits everyone is going to be challenging, though. Convincing individuals to change their behavior is no small task, particularly when they don’t perceive their actions as problematic.
What Does Compelling Evidence 3.0 Do?
Solutions like Order Insight and Consumer Clarity aim to identify and prevent invalid disputes before they escalate into chargebacks. That said, they may not be foolproof. In cases in which a Visa cardholder is determined to engage in first-party fraud, additional transaction information may not dissuade them from pursuing their dispute.
Visa Compelling Evidence 3.0, or simply CE3.0, presents a more effective approach to combating invalid chargebacks. Under previous rules, addressing a cardholder’s fraud claim required merchants to locate compelling evidence and submit it to the issuer. That party would then decide whether the documentation warranted reversing the claim.
With CE3.0, this process undergoes a significant transformation. Now, merchants must furnish records of at least two prior transactions meeting specific criteria. The transactions must have been made by the same cardholder, being between 120 and 365 days old, and having no prior disputes or fraud flags. Additionally, merchants must provide two out of four core transaction data elements, with either the IP address or device ID being mandatory for one of them. These streamlined procedures are expected to help lower merchant fraud and dispute ratios, as per Visa’s claims.
CE3.0 expands the range of acceptable evidence, and can also allow for the resolution process to be automatically initiated on behalf of the merchant. It reduces the need for human decision-making. If the qualifying information is accurate, the claim is automatically resolved. Issuers cannot initiate chargebacks using Visa reason code 10.4.
Does CE 3.0 Actually Prevent Chargebacks?
Visa’s data reveals that a significant portion of disputes — up to 75% — fall under the category of friendly fraud. These disputes could be effectively prevented by issuers providing additional transaction details, a capability facilitated by Compelling Evidence 3.0. While precise statistics are still emerging, there is good data suggesting that Compelling Evidence 3.0 will substantially decrease the occurrence of invalid chargeback filings.
CE3.0 introduces updated guidelines and criteria, designating a cardholder dispute as invalid if specific compelling evidence supporting the transaction can be provided. Merchants can now resolve disputes by presenting evidence of prior undisputed transactions involving the same cardholder.
To fully leverage the benefits of CE 3.0, merchants must integrate with the Order Insights platform. This is the only way to proactively prevent chargebacks filed using reason code 10.4.
CE 3.0 rules can be applied after a chargeback has occurred. But, their greatest impact is in averting disputes from evolving into chargebacks initially. By intercepting potential fraud during the inquiry stage, not only can merchants reduce their fraud and chargeback ratios, but they can also avoid the unnecessary drain on revenue caused by contesting invalid claims.
