Visa Adjusts Its Chargeback Rules to Help Stem a Rising Tide of Friendly Fraud

When it comes to payment card fraud, criminals trying to bilk the system with stolen card credentials is what typically comes to mind. But with e-commerce sales soaring during the pandemic, another form of fraud has been gaining momentum. This is so-called friendly fraud, in which a consumer disputes a valid purchase, such as a long-forgotten recurring subscription, or claims an item wasn’t delivered or that they simply don’t remember making the purchase.

Friendly fraud has become so problematic, it can account for up to 75% of all chargebacks, according to Visa Inc. As with all disputed card transactions, which include items purchased with stolen card credentials, the merchant must provide proof the transaction was legitimate to avoid a chargeback.

To help merchants tame the growing problem of friendly fraud,Visa late Thursday announced it is altering its chargeback rules to allow merchants to provide additional information to prove a disputed purchase is legitimate. 

The change, which will go into effect April 15, 2023, will allow merchants to prove the validity of a transaction by providing such information as examples of the customer previously using the same payment credential at their store, a customer’s login credentials, and proof the customer has used the product. The changes were developed in partnership with clients, the Merchant Risk Council, and the Merchant Advisory Group.

The changes come at a time when a study by Sift Science Inc. found that nearly one in five consumers who have filed a chargeback dispute have committed friendly fraud by submitting false claims to get their money back on legitimate purchases. Losses from friendly fraud cost merchants more than $25 billion a year, according to the National Retail Federation.  

“Friendly fraud is not always friendly, especially from a merchant’s perspective,” Mike Lemberger, senior vice president of North America Risk for Visa, says in a prepared statement. “At Visa, we’re evolving our disputes program using technology and insights that help level the playing field for the entire ecosystem. When we give merchants and issuers the tools to take more fraud out of the equation, everyone wins.”