No one, from merchants to processors to customers, likes handling disputed payments. Visa Compelling Evidence 3.0 (CE 3.0) intends to reduce these pain points. It provides a standardized framework for all parties involved in the chargeback process, enabling merchants to substantiate claims by sharing real-time information and preventing disputes.
The latest update to CE 3.0 brought a new round of concerns from acquiring entities. PaymentsJournal turned to Carol Palmer, Head of Risk & Compliance Operations at Ubiquity, and Daniel Keyes, Senior Analyst for Merchant Services at Javelin Strategy & Research, for a deep dive into the introduction of CE 3.0.
The Road to CE 3.0
CE 3.0 streamlines and expedites the resolution process for unauthorized disputes, focusing on addressing instances of friendly fraud or first-party fraud. In a collaborative effort, Visa worked closely with merchants and issuers to formulate this comprehensive rule change.
Visa conducted a thorough analysis of the specific requirements for merchants to confirm a cardholder’s previous participation and identify the essential resources for notifying when a transaction is mistakenly labeled as fraudulent. The rule adjustment empowers small businesses by enabling them to present more robust evidence in such cases. The goal is to empower merchants to avoid or minimize unjust chargebacks, creating a fairer and more efficient system for all parties.
“CE 3.0 delivers substantial advantages to merchants, ushering in a transformative shift,” Palmer said. “However, it’s important to note that issuers are still grappling with the challenges associated with billing errors and the burden of proof. Despite this, CE 3.0 introduces a significant improvement by meticulously examining personal data and seamlessly sharing it with the cardholder, mirroring the efficiency of CB processing.”
Keyes agreed that the benefits outweigh the negatives. “CE 3.0 puts more liability and responsibility on issuers,” he said. “But there are also more tools and a process they can use to handle that effectively and have this ultimately come out as a positive experience.”
The CE 3.0 methodology aligns with Rapid Dispute Resolution (RDR) and order insight. Through RDR, issuers get the benefit of transaction retrieval without incurring the typical chargeback costs. This eases concerns over blocked chargebacks and enables issuers to present data from order insight as compelling supporting documentation. From a regulatory standpoint, however, it’s crucial to acknowledge that the burden of proof rests with the issuer.
One prime advantage for issuers is real-time access to information and providing them with critical data promptly. This capability is a game-changer, significantly enhancing the issuer’s ability to navigate and respond effectively within the dynamic landscape of transaction disputes.
Some Remaining Concerns
The new policy carries financial advantages and disadvantages. CE 3.0 and Rapid Dispute Resolution allow transaction returns without imposing chargeback costs on issuing banks. This creates opportunities for substantial cost savings and heightened financial efficiency.
Despite the advantages, it’s crucial to recognize that the responsibility of proof in billing errors and chargebacks still rests with issuing banks. This introduces an ongoing challenge, as issuers must still shoulder that burden, even with the introduction of CE 3.0.
“I’m seeing a lot of issuers who are frustrated and have not adapted perfectly to the new rules,” Keyes said. “There are increases in chargebacks that haven’t been handled as well as they used to. There’s a lot of room for improvement on the part of issuers.”
Impact Hinges on Nuanced Circumstances
Although CE 3.0 brings about real-time information benefits, the financial impact depends on the nuanced circumstances at play. The ability for issuers to leverage these changes to their benefit will be a critical factor in determining the overall financial outcome.
Issuers face a challenge in implementing CE 3.0, particularly in instances where the evidence provided is limited. Limiting two or more undisputed transactions from the same merchant within 120 days poses difficulties for issuers in conducting a reasonable investigation, as Reg E requires.
How C.E. 3.0 Works: Sample Scenarios
Palmer offered two examples to demonstrate how CE 3.0 operates. The first scenario asks this question: How should the agent proceed if the cardholder confirms authorizing previous transactions with a merchant but disputes one specific transaction, but Visa blocks the chargeback because of prior undisputed transactions?
In the current process, Visa’s guidelines say the issuer must conduct a cardholder callout to verify whether the other transactions are disputed. If two or more pieces of information from order insight match, the agent can then proceed with denying the claim.
“With the new policy, as per Reg E, the claim cannot be denied merely based on the awareness of previously authorized transactions,” Palmer said. “Also, the agent cannot submit an exception with a comment that the cardholder claims the other transactions are authorized alone. The comment for the exception should specify which cardholder information didn’t match.”
Palmer’s second scenario considers a case where a transaction might be seen as undisputed due to the impracticality of initiating a chargeback for lower amounts within Visa Resolve Online. Consider a claim with three transactions of $100 each and two transactions of $10 each. The $10 transactions don’t meet the threshold for initiating a chargeback. Consequently, only fraud reports are initiated for the lower amounts, which poses challenges for issuers because these fraud reports are not recognized as “previously disputed transactions.”
Unfortunately, this limitation can be leveraged against the issuer, leading to transactions being categorized as undisputed despite the practical challenges in initiating chargebacks for them. “Think of this rule change as a dance,” Palmer said. “Banks are still figuring out their steps, adjusting to the rhythm of fewer chargeback costs, while still dealing with some challenges. To ensure everyone is on the same page, there must be teamwork—a dance between banks, businesses, and customers.”
Rest assured, this isn’t a one-time thing; it’s an ongoing dance. CE 3.0 asks banks to fine-tune their moves—understanding merchant documents better, updating how they handle mistakes, and making the most of the new features.
As the financial dance floor changes, it’s essential to understand what this rule change is all about. “It’s not just about following the rules; it’s about staying in tune with the beat of change in the financial world,” Palmer said. “The music of CE 3.0 is playing, and banks need to groove along with the rhythm of new paradigms.”
