Compelling Evidence 3.0: Features, Usage, and Benefits

Friendly Fraud Explained

Friendly fraud, also known as “false fraud,” often occurs when customers don't recognize a legitimate transaction on their statement and dispute it. With frequent digital purchases, it's easy to forget or question transactions, unfortunately leading to chargeback costs for the merchant. Some customers also intentionally misuse chargeback policies, falsely claiming fraud while keeping the purchased item, which is essentially a form of theft.

A high chargeback rate can severely impact the business. Depending on the merchant’s performance, payment processors can impose penalties on sellers, which can result in significant financial losses, restricting the development of the company. The best way to handle the situation is to implement alerts to prevent chargebacks. Dispute-related transactional charges are often costlier than refunds, so proceeding with a dispute is usually unproductive. However, merchants must defend themselves, representing their company in the dispute if there’s a large sum at stake to secure their revenue and reputation. That’s when solutions, like Visa’s Compelling Evidence 3.0, come in handy.

Defining Visa’s Compelling Evidence 3.0

Dispute representment can be quite challenging to deal with. A particularly confusing element of the process is "compelling evidence" (the documentation proving a claim unwarranted), which Visa's broad rules can make feel subjective. Visa Compelling Evidence 3.0 establishes a standard set of rules and evidence requirements for disputes. It allows merchants to use real-time information to substantiate their claims within the chargeback process, ultimately helping to prevent disputes marked with Visa reason code 10.4.

Merchants can leverage CE3.0 after a dispute occurs, during the representment process. Compelling Evidence 3.0 enhances the likelihood of winning the dispute and prevents impact on the fraud ratio. It's crucial to understand, though, that chargeback fees may still apply, and the dispute will still factor into the chargeback ratio.

How Does Compelling Evidence 3.0 Work?

Since 2024, CE3.0 rules allow merchants to share two past transactions as proof of a buying history with the cardholder, which Visa calls a ‘historical footprint’. Merchants can submit this strong evidence after the dispute occurs. If a dispute becomes a chargeback, sellers must challenge it via representment. To do this, merchants must find and send two eligible historical transactions to their acquirer through the Checkout.com dashboard or API, which will respond for them using Visa Resolve Online (VROL).

For better understanding, we will explain how chargeback resolution with Compelling Evidence 3.0 works step by step:

• Stage 1. The cardholder sees an unfamiliar charge on their bank account and initiates a dispute. Also, it is possible that a fraudster files a chargeback request for a legitimate transaction.
• Stage 2. The system checks for two additional historical transactions with the same customer. They must predate the disputed transaction by 120 to 365 days (this 120-day constraint is waived for other undisputed original credit transactions). Also, neither transaction can be disputed nor flagged as fraudulent.
• Stage 3. The software looks for customer information. A minimum of two data points must be identical across all three transactions, with at least one of these being the IP address or device ID/fingerprint.
• Stage 4. If the two previous transactions fit the criteria and match data points, the case gets closed. Successful validation will result in reversal of the chargeback, impacting the dispute ratio but not the fraud ratio.
• Stage 5. In case when a merchant lacks essential client data or there are no two historical transactions that fit the criteria and predate the current one, the chargeback progresses. This means that the seller can be obligated to pay for it.

For effective utilization of Compelling Evidence 3.0 in dispute resolution, merchants should prioritize the collection of comprehensive payment data, including device information and IP addresses. Furthermore, consistent billing descriptors are essential; the initial six characters of the billing descriptors for the evidence transactions must precisely match those of the disputed transaction.

Benefits of Compelling Evidence 3.0

As we have already figured out what Compelling Evidence 3.0 is and how it works, let’s discuss its advantages. CE3.0 offers several benefits for e-commerce merchants that positively affect the development of the business. The list includes:

• Revenue protection. CE3.0 is a powerful tool for handling friendly fraud disputes that helps merchants protect their revenue, avoiding financial losses associated with fraudulent activity.
• Reduced transaction expenses. With this tool, businesses not only secure their revenue but also avoid fraud-associated transaction costs, such as penalty fines. It might not seem like a significant benefit; however, as fraud occurs in e-commerce daily, merchants can save a considerable sum with the Compelling Evidence 3.0 solution.
• Better business reputation. Compelling Evidence 3.0 helps sellers resolve fraudulent disputes, maintaining the good image of the brand. With CE3.0, merchants can prove their competence and avoid unjustified reputational damage, which is vital for building strategic business connections.
• Enhanced customer-company relationship. By proving their competence via Compelling Evidence 3.0, merchants also become more dependable in the eyes of the customers. Enhanced trust fosters loyalty to the brand and attracts new clients, increasing sales.
• Protection against monitoring programs. Payment processors set chargeback and fraud thresholds for merchants to maintain a reliable brand image. If sellers exceed them, they are enrolled in the merchant monitoring program, which applies additional punishment fees for all transactions. CE3.0 helps businesses to stay within these thresholds and avoid monitoring program enrollment.
• Prevention of repeat offenses. Fraudsters rarely engage in criminal activity only once; usually, scammers repeat a tested fraud scheme. Defending the company’s interests against fraudulent chargebacks will show scammers that the merchant is not an easy target, potentially preventing another scam attempt.

Furthermore, Compelling Evidence 3.0 is a reliable instrument that has proven its efficiency over the years in aiding ecommerce merchants. It’s a helpful tool, available within the Verifi Visa solution. You can access it effortlessly with MidArmor.