Updates to VISA and Mastercard chargeback protection for merchants

See how the latest fraud and chargeback updates, along with effective fraud management, help you, the merchant, keep ratios down!

Neil Smith

HDX Global CEO representing Nethone as VP of Payments Strategy & Financial Services

25 April 2023


5 min read

Any card scheme changes to payment and transaction processes can understandably lead to unease among eCommerce merchants. With the recent 3DS2 implementation leading to fears of unnecessary checkout friction, it is therefore refreshing that the latest guideline changes to chargebacks by VISA and Mastercard chargeback protection for merchants were implemented with the input of both merchants and issuers. The changes to the Visa Dispute Monitoring Program (VDMP) have led to the introduction of VISA Compelling Evidence 3.0 (CE 3.0) to their chargeback process. Similar measures have also been implemented with Mastercard’s chargeback merchant guide. Both are designed to give merchants the opportunity to lower chargeback rates and avoid revenue losses - as long as they can prove the disputed transaction is legitimate. Let’s look at the changes and how they affect you.

How chargeback disputes worked before the latest updates

As we know, chargebacks are often initiated by fraudsters as a result of account takeover (ATO) or other fraud methods associated with social engineering attacks. Chargebacks are just one tool fraudsters will use to make money through fraudulent means, however, chargebacks can also be referred to as friendly fraud - for not all disputes are the result of fraudster activities. They can be initiated by dishonest customers wishing to save money, or even be the result of a customer forgetting a payment was made for a certain item or service. The onus has always been on merchants to deal with the chargeback process, which they often felt was time-consuming and expensive so it was easier to process a refund - despite having compelling evidence to suggest the transaction in question was legitimate.

Previous guidelines also stated that a chargeback request was investigated as a single transaction and therefore either accepted or declined. The financial losses and charges per dispute were solely placed upon the merchant. This has now changed to the benefit of merchants.

What is VISA Compelling Evidence 3.0 and how will it benefit merchants?

Introduced mid-April 2023, the latest update to the VISA Dispute Monitoring Program (VDMP) (they prefer to use the term ‘dispute’, however, it is often used interchangeably with ‘chargeback’) gives merchants the chance to investigate and provide evidence that a transaction behind a chargeback request was indeed carried out legitimately by a customer. Hence the name: Visa Compelling Evidence 3.0. If it can be proven with compelling evidence, the chargeback can be declined, thus saving merchants unnecessary financial loss - especially if the request was made by a dishonest customer. It is then down to the issuer to investigate the cardholder and determine if the transaction is legitimate or false.

What can be used as compelling evidence in a chargeback dispute?

Crucially, there must be two common elements from a cardholder’s historical transactions from the last 120+ days that can be used to match with the transaction at the heart of the chargeback dispute. Data attributes such as IP addresses, device IDs and network settings, shipping addresses used for product delivery and whether or not a product was downloaded or used via an account login - all this, and much more, can be used to identify legitimate payments. Of great importance to merchants is that biometric information can also be used as compelling evidence to back up the aforementioned.

Mastercard now requests merchants to provide evidence that a cardholder authenticated an initial transaction using 3D Secure (3DS) or show that the transaction was verified using a CVV. Not only does this prove that a transaction was authorised by a user, it also encourages merchants to use the updated 3DS2 in their payments flow to fight fraud but now also keep chargeback ratios as low as possible.

But wait… fraud management is key to effective chargeback monitoring

There have also been changes to VISA’s fraud management program (VFMP), lowering accepted fraud thresholds, while also including a host of small ticket items and digital goods. The updated program will monitor fraud levels on specific merchant category codes (MCCs) related to digital goods, including music stores, media, digital games, apps, and large digital goods merchants - all of which have been prone to not only fraud but chargebacks. 

This, along with Mastercard’s updates, indicate that merchants must make every effort to implement the best possible practices and solutions available to both fraud and chargebacks. No longer should fraud and chargebacks be considered a necessary evil in eCommerce - they can be effectively prevented so long as a multifaceted approach is used to keep fraud and chargeback ratios well below accepted thresholds.

Repercussions of non-compliance

If a merchant is unable to comply with Visa and Mastercard fraud and chargeback guidelines, fees and penalties can be detrimental to a merchant, but worse still is possible with the termination of a merchant account. In addition to these measures, all major card schemes work with law enforcement agencies and other industry partners to share information and prevent fraud from occurring. 

As a result of the aforementioned, any negative media coverage can have a major impact on a merchant’s online reputation - this is key in eCommerce and an inability to show effective fraud detection and prevention can have a major negative impact on customer trust. This is entirely avoidable.

By effectively monitoring fraud and chargebacks, your business can avoid any negative repercussions. Resolving issues pre-dispute will keep your chargeback ratios low, meaning you as a merchant will not be deemed high-risk and not be included in fraud and chargeback monitoring programs.

Effective fraud and chargeback management solutions already exist

As global eCommerce continues to grow, along with global fraud rates, it is no longer effective to focus on chargebacks alone, nor indeed on fraud alone. A holistic approach is required, all while keeping the customer UX of service at the heart of any approach. In a practical sense, this can mean paving the quickest route possible to online checkout and easily clickable browsing options for resolving any issues through the service, rather than claiming a chargeback through an issuer. Some good old customer service can also go a long way to improving the customer UX and finding a resolution to avoid the leap to a chargeback dispute.

As for tech solutions, AI-powered anti-fraud and chargeback management can aid the process of automatic and real-time monitoring of every single user behind an account - from registration, and use of service to pre and post-payment disputes. Behavioral biometrics can ease the efficiency of the whole process by distinguishing fraudsters from bots and dishonest customers from legitimate users, all while analyzing data attributes that can also indicate suspicious network and device settings. Keeping on top of all potential chargeback and fraud issues will not only improve your company’s reputation but allow you will benefit from higher transaction acceptance rates - and with this, higher revenues.


If you are interested in learning more about chargeback protections for merchants, we have just the solution for you. Click 'book a call' at the top of this page or contact Neil directly via email at neil.smith@nethone.com or via LinkedIn.

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