Visa: New Fraud Dispute Rules Will Save Merchants ‘Billions’

Visa says it has made it easier for merchants to fight so-called “friendly fraud.”

The payments giant on Thursday (Sept. 28) announced an update to its dispute process for friendly fraud or first-party fraud, for card-not-present transactions.

“This change could save small businesses over a billion dollars in losses globally over the next five years, in turn benefitting the entire ecosystem of consumers and merchants,” the company said in a news release.

According to the release, the rule change offers merchants more ways to show a disputed charge is valid and authorized, helping them keep their money while protecting legitimate cardholder transactions.

As PYMNTS has written, the term “friendly fraud” — also known as “first party fraud” — originally referred to parents discovering their kids had charged purchases their cards and then disputing those charges.

Since then, it has evolved to something more nebulous, with bad actors — or just customers with buyer’s remorse — disputing legitimate transactions, getting the charges reversed and holding onto their purchases.

The impact of this type of fraud can devastate small businesses, Visa said in the release, quoting Brooklyn-based fitness studio owner Kaseedee Pilarz, who said the rule change will be a “gamechanger” for her business.

“I have been in tough situations where legitimate membership charges have been disputed. If I lose the dispute, not only do I lose the membership fee, I also get a penalty,” Pilarz said. “That can be the difference between making payroll or not. This change will help ensure I have a fair shot during those disputes.”

Visa Chief Risk Officer Paul Fabara noted in the release that the change is part of Visa’s overall fraud-fighting strategy. He added that the company was still committed to “zero-liability” for its members for unauthorized transactions.

Friendly fraud is just one piece of a larger fraud puzzle. PYMNTS Intelligence found, based on a survey of 200 executives at America’s largest banks, that fraud has risen by 43% at financial institutions (FIs) compared to 2022, with the average cost of fraud jumping by 65% for FIs with assets of $5 billion or more.

“Misuse of account information remains the leading source of fraud, accounting for 38% of fraudulent transactions,” PYMNTS wrote recently. “Notably, digital wallets like Samsung Pay, Google Pay and Apple Pay, as well as same-day automated clearing house (ACH) and regular ACH payments, have also seen significant increases in fraud rates since 2022.”