Friendly fraud occurs when a legitimate customer disputes a valid charge on their credit card, leading to a chargeback. For subscription-based businesses, this is a particularly painful problem. A customer might forget about a recurring payment, not recognize the billing descriptor, or simply want to get their money back without going through a formal cancellation process. This results in lost revenue, chargeback fees, and potential damage to your merchant account standing.

Visa’s Compelling Evidence 3.0 (CE 3.0) initiative is a direct response to this issue. It provides a framework for merchants to proactively provide evidence that a disputed charge is, in fact, legitimate. By doing so, you can often automatically deflect the chargeback before it’s even processed, saving you time, money, and administrative headaches.

At its core, CE 3.0 is about data. It allows merchants to submit a rich set of data points that prove a cardholder’s legitimate interaction with their service. To successfully deflect a chargeback under CE 3.0, you need to provide evidence of undisputed transactions from the same card within a specific timeframe. The key is to demonstrate a clear pattern of legitimate usage.

Here’s a breakdown of the types of evidence you’ll need to collect:

• Device Information: This includes the device ID, IP address, and any other unique identifiers associated with the customer’s device.
• Login History: A log of when and from where the customer has accessed their account.
• Usage Data: Proof that the customer has been actively using your service. This could be anything from watching a video to creating a document or accessing a premium feature.
• Transaction History: A record of previous, undisputed payments from the same card.

By logging this information, you can build a comprehensive picture of a customer’s interaction with your service. When a chargeback is initiated, you can then present this evidence to the card issuer, who can use it to validate the charge and dismiss the dispute.

The applications of CE 3.0 are broad, but it’s particularly valuable for any business with a recurring revenue model.

• SaaS platforms: A SaaS company can track user logins, feature usage, and data exports to demonstrate that an account is active and valued by the customer.
• Streaming services: By logging which movies a user has watched or which songs they’ve streamed, a streaming service can provide concrete evidence of service consumption.
• E-learning platforms: An e-learning company can track course progress, downloaded materials, and interactions with instructors to prove that a student is actively engaging with the platform.
• Membership sites: A membership site can log access to exclusive content, participation in community forums, and downloads of members-only resources.

While CE 3.0 is a powerful tool, it’s not a silver bullet. There are a few common challenges and misconceptions to be aware of.

• Data privacy: Collecting and storing user data comes with significant responsibility. You need to be transparent with your customers about what data you’re collecting and why, and you must comply with all relevant data privacy regulations, such as GDPR and CCPA.
• Technical complexity: Implementing a system to log and retrieve the necessary data can be complex. It requires careful planning and robust engineering to ensure that you’re capturing the right information without impacting the user experience.
• It’s not a replacement for good customer service: While CE 3.0 can help you fight fraudulent chargebacks, it shouldn’t be your only line of defense. Proactive customer communication, clear billing descriptors, and an easy-to-use cancellation process can all help to prevent chargebacks from happening in the first place.

To make the most of CE 3.0, you need a systematic approach to data collection and management. Here are a few best practices to follow:

• Use webhooks to log everything: Webhooks are a powerful tool for capturing real-time events in your application. By setting up webhooks for key user actions, such as logins, feature usage, and plan changes, you can create a detailed audit trail that can be used to dispute chargebacks.
• Maintain a clear and accessible audit trail: All of the data you collect should be stored in a way that is easy to access and query. When a chargeback occurs, you need to be able to quickly pull up the relevant evidence.
• Be proactive with your communication: Don’t wait for a chargeback to happen. Use the data you’re collecting to identify at-risk customers and reach out to them before they initiate a dispute. For example, if a customer hasn’t logged in for a while, you could send them an email to see if they need any help.
• Integrate with a payment processor that supports CE 3.0: Not all payment processors are created equal. Make sure you’re working with a provider that has a robust system for submitting CE 3.0 evidence.

Kinde is a comprehensive user management and billing platform that can help you implement a robust system for preventing chargebacks. With Kinde, you can easily track user activity, manage subscriptions, and automate your billing workflows.

Kinde’s webhooks are particularly useful for collecting the evidence you need for CE 3.0. You can set up webhooks to trigger on a wide range of events, including:

• user.authenticated: Fired every time a user successfully signs in.
• customer.plan_changed: Triggered when a customer upgrades or downgrades their subscription.
• customer.payment_succeeded: Fired when a recurring payment is successfully processed.

By subscribing to these webhooks, you can build a detailed, real-time log of all user activity, giving you the data you need to effectively fight friendly fraud.

• Respond to customer activity using webhooks
• Add and manage webhooks