Visa UK has implemented a series of new initiatives aimed at shielding small businesses from the rising incidence of ‘friendly fraud.’ This type of fraud occurs when cardholders dispute valid purchases with their card issuer.
Recent research from Visa shows that 90% of small businesses have experienced an uptick in this form of fraud over the past year, with disputes affecting up to 20% of sales. This surge in friendly fraud has repercussions for both merchants and card issuers. For example, Nationwide Building Society had to streamline its card dispute process due to a remarkable 251% increase in challenges during the Covid-19 pandemic.
Examples of friendly fraud include situations where a gym-goer fails to cancel a membership, a child makes a purchase on a parent’s device, or customers contest charges claiming they never received their orders or that items arrived damaged.
In response to these challenges, Visa has introduced the Compelling Evidence 3.0 (CE3.0) framework, which enables businesses to present more robust evidence to validate disputed charges as legitimate and authorized by the cardholder. This framework offers an additional layer of protection for merchants while still safeguarding consumers making genuine claims.
Under CE3.0, businesses can submit evidence of two prior undisputed transactions using the same payment method. These transactions must occur between 120 and 365 days before the dispute date. Additionally, either the IP address or the device ID/fingerprint must match across the three transactions, along with one other identifying factor such as the shipping address or account login ID. By providing this evidence, businesses can potentially retain funds from the original transaction.
Visa estimates that these measures could result in annual savings of approximately £31 million for UK retailers facing fraudulent claims.
Mandy Lamb, managing director of Visa UK and Ireland, remarked: “Small businesses are the backbone of both the UK economy and our local communities. We recognize their crucial role, which is why we continually adapt our protective solutions. These new measures will help ensure that small businesses can operate securely while upholding the high level of customer protection provided by Visa’s Zero Liability Policy.”