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Are Visa’s new chargeback dispute rules really a lifeline for embattled online businesses—or are merchants expecting too much? The reality, of course, lies somewhere in between.
Merchants are expected to lose over $362 billion to online payment fraud between 2023 and 2028 — and bogus chargebacks will account for a big chunk of that total.
According to LexisNexis, merchants are seeing losses from chargebacks climb by 30% each year, and 75% of total chargeback losses are the result of friendly fraud, in which customers improperly reverse transactions and leave merchants saddled not just with the loss of the original transaction, but also with the substantial additional costs that come with managing chargeback cases.
That’s the backdrop for Visa’s latest overhaul of its chargeback dispute process: a new set of guidelines known as Compelling Evidence 3.0 (CE 3.0), introduced in April 2023.According to Visa’s own survey stats from 2023, merchants had high hopes for Visa’s new rulebook, with nine out of 10 saying they expect the updates to solve, or at least substantially reduce, the extent of the chargeback crisis.
So is CE 3.0 really a lifeline for embattled online businesses—or are merchants expecting too much from Visa’s new policies? The reality, of course, lies somewhere in between.Visa’s updated rules really do have the potential to empower merchants and streamline the dispute resolution process. But they will also bring new challenges—and merchants that fail to recognize that fact and prepare accordingly could find themselves in a worse position than they were before.
The promise of Visa Compelling Evidence 3.0
First, the good news: Visa’s CE 3.0 rules give merchants the ability to provide significantly more data upfront when challenging a payment dispute. This expanded evidentiary scope is particularly valuable for sellers of digital goods and subscription-based businesses, enabling them to present a much clearer picture of their ongoing relationship with the customer.
Bringing more data into the process early on could also help streamline the dispute resolution process. By frontloading evidence gathering, the back-and-forth between parties can be reduced, leading—in theory, at least—to swifter resolutions and less red tape.
Merchants can also more easily prove the legitimacy of a disputed transaction by referring back to two previous undisputed transactions made using the same payment credentials. That should make contesting chargebacks much more straightforward for small businesses, which lack the resources of larger organizations.
Indeed, Visa estimates that CE 3.0 will save small businesses more than $1 billion over the next five years, a testament to the framework’s intended impact.
The CE 3.0 reality for merchants
But of course, Visa’s Compelling Evidence 3.0 isn’t all good news. Gathering new evidence upfront might save time in the long run, but it will still require training teams with the knowhow and resources to gather and submit that evidence.
Brands must also now collect and securely store certain data elements for at least 120 days, and maintain customer records for a full year to demonstrate a fraud-free footprint.
CE 3.0 also allows merchants the ability to stop a chargeback at the pre-dispute stage. But to leverage this feature effectively, companies must deliver evidence data within just two seconds. Meeting this stringent time frame can be a tall order, requiring significant updates to a company’s payment processing infrastructure.
Coupled with enhanced data collection, these rapid-response requirements could, for many businesses, require substantial investments in both training and system upgrades.
Other stakeholders—including acquirers, who play a crucial role in communicating between Visa and merchants—also will need to adapt to CE 3.0, and figure out how to properly integrate with Visa Resolve Online (VROL) to support CE 3.0. Any hiccups in this process could cause confusion or knock-on delays for merchants.
While CE 3.0 is a step in the right direction, it’s not a one-size-fits-all solution. The initiative was designed specifically to address friendly fraud chargebacks under Visa’s 10.4 card-not-present reason code. This narrow focus means that companies facing chargebacks for other reasons, such as service-related disputes, won’t benefit from the additional evidence provisions.
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How to get the most out of Visa’s chargeback rules
So, what can businesses do to overcome these hurdles associated with CE 3.0? The key lies in a proactive and strategic approach.
First and foremost, merchants should prioritize data collection and organization. Even if they’re not yet using CE 3.0, building a robust database of transaction-related information will pay dividends down the line. Compiling compelling evidence data now will give organizations a solid foundation to work from when they do implement the new rules.
Investing in automated solutions to manage chargeback cases also can help companies adapt to the increased workload demands of CE 3.0. Leveraging technology to collect, store, and retrieve transaction data can significantly reduce the manual labor required, freeing up resources to focus on other aspects of the business.
Finally – and perhaps most importantly – merchants should stay informed and educated about the evolving chargeback landscape.
CE 3.0 won’t be the last update to Visa’s dispute rules, and staying abreast of anticipated changes will enable companies to plan, adapt, and maintain their competitive edge.
Fighting fraud: Remain on guard
There are no easy answers in the intensifying fight against friendly fraud. While Visa Compelling Evidence 3.0 represents a significant step forward, it also underscores the complexities and growing challenges that merchants face today.Despite this, the path ahead for merchants is clear, if not always simple: embrace change, stay informed, and be proactive. The businesses that thrive in this new era will be those that view CE 3.0 neither as a panacea nor an insurmountable obstacle, but instead as an opportunity to strengthen their defenses, streamline and modernize processes, and ultimately, forge deeper, more trusting relationships with customers.
In the end, the chargeback battle won’t be won overnight. To minimize losses, merchants will require ongoing vigilance, adaptability, and a commitment to putting the customer first. But with the right strategies, tools, and mindset, merchants can turn the tide on friendly fraud—and secure a brighter, more sustainable future for their businesses.
