Visa updates chargeback rules to help merchants

Visa is updating its chargeback rules to help merchants combat "friendly" fraud, sometimes referred to as "first-party" fraud. Beginning in April 2023, if a merchant believes a disputed transaction is valid, and they can provide additional information evidencing this, the dispute will be rejected. Additional information might include the customer using the same card for previous purchases from the merchant, login credentials and proof of use of the product.

Visa said the change was made in consultation with the Merchant Risk Council, which represents ecommerce and payments professionals, and the Merchant Advisory Group, a merchant trade group.

"We've seen first-hand how first-party fraud is a financial burden for merchants," said John Drechny, CEO at the MAG.

Julie Fergerson, CEO at the MRC, added, "Reducing the impacts of first-party misuse on small businesses requires industrywide support. We stand with Visa in their commitment to ensuring the entire ecosystem is taking the right steps against inaccurate chargeback disputes and protecting merchants from bearing the weight of these costs."

Fighting not-so-friendly fraud

Friendly fraud occurs when a cardholder legitimately makes a purchase, then later disputes the transaction as fraudulent, triggering a chargeback. Data analyzed by the fraud prevention firm Sift revealed that nearly one in five (17 percent) of consumers who have filed chargeback disputes are actually committing friendly fraud.

"Friendly fraud is not always friendly, especially from a merchant's perspective," Mike Lemberger, Visa senior vice president, said in a statement posted by Visa to its website.

When a transaction is disputed, the merchant is assessed fees on top of losing money from the sale, and they must invest time and staff resources to respond to the dispute. Visa estimated that total merchant losses from a chargeback can amount to as much as double the original transaction amount.

While chargebacks can occur in card-present (CP) and card-not-present (CNP) channels, they are especially prevalent in CNP channels. And as more transactions have moved online, chargeback increases have followed. Across Sift's network, for example, the average number of chargebacks filed by consumers rose 19 percent between the first quarter of 2020 and the first quarter of 2021. The average value of a chargeback rose 21 percent, to $293.04.

The fraud-prevention firm Kount surveyed a group of merchants in 2021 and found 58 percent were seeing higher chargeback rates; 33 percent estimated chargeback rates exceeding 1 percent.

A merchant's chargeback rate is calculated by dividing the number of chargeback cases per month by total number of transactions. Generally, a merchant with a chargeback rate below 0.65 percent is considered in good stead with the networks. If a merchant's chargeback rate rises above 0.9 percent, it can trigger card-network fines, and even network suspensions.

Whether you want to upgrade your POS offerings, find a payment gateway partner, bone up on fintech regs or PCI requirements, find an upcoming trade show, read about faster payments, or discover the latest innovations in merchant acquiring, The Green Sheet is the resource for you. Since 1983, we've helped empower and connect payments professionals, starting with the merchant level salespeople who bring tailored payment acceptance and digital commerce tools, along with a host of other business services to merchants across the globe. The Green Sheet Inc. is also a proud affiliate of Bankcard Life, a premier community that provides industry-leading training and resources for payment professionals.

Notice to readers: These are archived articles. Contact information, links and other details may be out of date. We regret any inconvenience.