For a long time after the US Fair Credit Billing Act was enacted in 1974, not much changed in the world of credit card chargebacks. The rise of ecommerce and, with it, the volume of card-not-present payments led to significant overhauls in the system over the past five years. The most notable changes in the past five years included the 2018 adoption of the Visa Claims Resolution (VCR) process and the staged adoption of the Mastercard Dispute Resolution Initiative (MDRI) from 2018 to 2020. These two major changes took the rules and system enacted in the 1970s and adapted them to ecommerce, simplifying and streamlining the process for disputing chargebacks.
Soon after, Visa changed the subscription billing rules in 2020. The greatest volume of chargebacks comes from consumer disputes of recurring payments they either do not remember making or could not cancel in time. The changes to the rules protected the consumer in a way that also reduced chargebacks for subscription merchants. Mastercard followed suit with its own changes to subscription and negative option billing in 2022 as well.
The latest big change to the chargeback ecosystem was the implementation of Visa Compelling Evidence 3.0 in April 2023, which Mastercard is expected to follow suit. CE 3.0 is the first real attempt by a credit card scheme to tackle friendly fraud head on. Now, if you have past transactions that establish a legitimate transaction history with the cardholder that fit specific criteria, it is supposed to guarantee a technical win for the merchant. However, it is still too early to say how the change is affecting the market in practice.
Merchants are becoming more educated about chargebacks and realised it is money worth fighting for. As they are becoming more data-driven, merchants are now aware that they can use chargeback data to determine the health of their business and improve the functioning of their fraud prevention systems.
Merchants are also more aware of the need to monitor their own chargeback ratios to avoid coming close to the limits and entering the credit card schemes’ monitoring programmes and all the attendant fees and hassle the process implies. However, we still see an education gap in the space among many merchants, with much misunderstanding on how to build evidence for chargeback representants, when to use refunds, and other topics related to chargeback management.
Chargeback data is so valuable in today’s business environment because merchants and anti-fraud solutions have become much more data driven and chargeback data is a basis for their models. However, before chargeback data became integral to fraud prevention models, chargebacks were the ugly duckling of the credit card processing space. The main reason was that chargebacks went into the bucket of processor fees that impacted the bottom line, while most merchants, especially the ones in ecommerce, preferred to focus on top-line growth.
Now, chargeback data is the new gold, helping merchants improve their fraud prevention models to both stop more real fraud but also approve more legitimate transactions.
At the same time, merchants are looking for more technology-based solutions for this problem, as it is not feasible for chargeback management to remain manual anymore. Issuers and acquirers are coming to this realisation as well. Regardless of these tech solutions being built in-house or externalised to third parties, more advanced tech solutions will be built to handle this problem.
As for chargebacks, even with CE 3.0 and other remedial measures taken by the credit card companies, they are still expected to grow in the next five years in tandem with the growth in ecommerce. In terms of consumer behaviour, it is becoming more and more normalised for consumers to challenge charges with their issuer instead of talking to merchants.
According to a Justt sponsored survey in May, both in the US and the UK, more than three out of four people had filed a chargeback in the past 12 months. This represents double digit growth in just one year for both markets and showcases the importance for merchants to find solutions to their chargeback management issues that can easily scale, as this problem grows.
Justt’s solution is different than others available on the market due to its combination of data-driven machine learning, automation, and human expertise. Justt’s technology provides a hands-free solution that is tailored per merchant at scale and can effortlessly meet changing chargeback volumes. Meanwhile, the solution is constantly optimising its results via human and machine learning methods.
Our domain experts are staying up to date with industry changes and adapting those changes across our entire portfolio of merchants. Meanwhile, the technology is uncovering performance weak spots, and subsequently running A/B tests to improve the weak spot win rates over time. This, in turn, gives merchants that work with Justt a higher win rate than they had before, and a win rate that continues to improve over time.
Roenen Ben-Ami, co-founder and Chief Risk Officer of Justt, is an expert in the field of payments and chargeback mitigation. Previously, at the payments service provider Simplex, Roenen built the Chargeback and Merchant Risk teams that successfully recover millions of dollars a year.
Justt is dedicated to helping online merchants navigate the complex and costly system for credit card disputes. The company’s smart technology and in-house expertise successfully resolves chargebacks for merchants, automatically reuniting them with their revenue. Justt’s proprietary AI pulls the best evidence to build merchants’ most compelling defence and keeps getting smarter with time, so win rates continue to grow.
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