How will Visa’s April 2020 First Party/Friendly Fraud Rules Affect You?

If your business works with Visa, it is time to prepare for rule updates that will go into effect April 18, 2020.

Friendly fraud, also known as first party fraud, continues to be a growing concern for digital businesses. This type of fraud occurs when a cardholder seeks reimbursement or a credit for legitimately purchased goods and services, resulting in potential disputes and creating additional costs for all participants. While it can be hard to recognize, much as 86% of all chargebacks can be from friendly fraud.

Visa’s Merchant Purchase Inquiry (VMPI) program was created to combat the growing friendly fraud problem. Kount’s Friendly Fraud Prevention Solution uses a VMPI integration to help merchants participate in the program. However, whether or not your business relies on VMPI, if you interface with Visa, the rule updates effective April 18, 2020 will potentially affect you. Visa is making updates to ensure issuers, acquirers, and merchants are better prepared to manage the fast-growing friendly fraud issue.

What do these changes mean for you and how can you confirm you are in compliance? Here is a breakdown of the rule changes.

Overview of the Visa Rule Modifications:

  1. Issuer Base Criteria for Cardholder Review
  2. Card-Not-Present (CNP) Merchant Requirement to Validate Cardholder Approval
  3. Merchant Withdrawal of Services or Assets Following a Fraud Dispute
  4. Contact Information in Transaction Details for High Dispute Merchants

What the rules mean for you:

Update #1: Issuer Base Criteria for Cardholder Review

Issuers will be required to put basic rules in place for all fraud disputes in order to substantiate them. An issuer whose cardholder has five or more dispute claims within a 12-month timeframe must perform a formal review of the cardholder account and related disputes to determine if friendly fraud is occurring. If necessary, they will need to take action in order to address the fraud with appropriate fraud controls.

By using Kount’s Friendly Fraud Prevention Solution, criminal fraud will be diminished and friendly fraud can be addressed before it happens.

Update #2: Card-Not-Present (CNP) Merchant Requirement to Validate Cardholder Approval

“Merchants that operate account-on-file business practices that see high volumes of cardholder transactions during a single day will be required to set base-level daily cardholder velocity controls.”

This means that additional cardholder authentication must be carried out when transactions exceed daily levels, but no more than 25 per day. If a customer exceeds this number, then the merchant must conduct additional authentication.

A large number of transactions in a short time period typically signals fraud. Kount addresses this update through velocity rules within our business policies, which can be easily set up to automatically limit the number of transactions associated with a unique user or payment, whether they are friendly fraud or legitimate fraud.

Update #3: Merchant Withdrawal of Services or Assets Following a Fraud Dispute

“Merchants will be required to revoke provision of goods / services after a fraud dispute if the merchant believes its customer is disputing a legitimate transaction and establish a process to prevent recurrence by the cardholder.”

This rule update from Visa speaks directly to the growing friendly fraud problem, and specifically to the use cases of intentional friendly fraud or policy abuse where the cardholder made a legitimate transaction and is trying to game the system.

Kount helps your business easily address this rule update because Kount automatically connects to your order management or inventory system, allowing you to automatically revoke access for specific accounts or goods based on the compliance and risk policies you set, enabling you to prevent this event from occurring again.

In addition, with Kount’s Event Notification System, transactions marked as a chargeback or refund can be automatically suspended/revoked via a custom reason code in real time based on specific business policies.

Update #4: Contact Information in Transaction Details for High Dispute Merchants

“CNP merchants are currently required to include dispute contact details in the merchant location field of the authorization message. This detail is typically used as line two on customer statements and bank reports and will allow cardholders to more easily raise disputes directly with the merchant, rather than the issuer.”

In other words, Visa will enforce the requirement that the merchant provide their contact details in the authorization method, which they hope will reduce chargebacks from accidental friendly fraud by encouraging the cardholder to dispute a transaction with the merchant rather than the bank. By giving cardholders easy-to-access contact information, the hope is that this easy fix will immediately improve a business’s bottom line. If the business adds a phone number in the transaction details, then consumers are more likely to call the business to discuss the transaction instead of calling the bank, which results in an automatic refund.

Kount can easily help businesses come into compliance on this rule by updating the transaction details with the business’s dispute contact information.

Note that acquirers will be advised quarterly of CNP merchants with excessive dispute rates that fail to provide this information. Visa enforcement rules for non-compliance will apply.

Visa anticipates the outcomes from these four rule changes will address friendly fraud and reduce unnecessary financial losses.

Kount’s Friendly Fraud Prevention Solution featuring an integration to VMPI

With Kount’s solution, businesses are seeing a significant return on their investment to the tune of 3-8x ROI. Not only are they able to reduce financial losses and chargebacks from friendly fraud, they are able to stop friendly fraud before it happens by giving banks more information at the time of a customer inquiry. When a customer calls their bank to dispute a charge, with VMPI, banks can request additional information from the business in order to validate purchases.

Learn more about Kount’s Friendly Fraud Prevention Solution featuring an integration with VMPI.

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Learn more about Kount’s Friendly Fraud Prevention Solution featuring an integration with VMPI.

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