Cryptocurrency Eliminates Fraud and Chargebacks.

One way to get a merchant’s ears to perk up when the idea of accepting crypto payments comes up is to mention one big benefit: no chargebacks.

That’s simply a factor of the technology. Cryptocurrency transactions are immutable — irreversible and unchangeable — once written onto the blockchain. That finality is core to how blockchain technology overcomes the doubles spend problem.

Technically, that takes as much as an hour on bitcoin, as new blocks of information are added every 10 minutes and about six more are needed before the transaction is truly considered final by most exchanges. Ethereum’s 12-second block times require about 12 minutes to be considered finalized.

But that finality isn’t really the same thing Mastercard, Visa and banks mean when they talk about finality from chargebacks. In this case, cryptocurrency exchanges and experts mean the amount of time it would take to be safe from a 51% attack that would let bad actors take over a blockchain. While doable on smaller, less populated blockchains, it is effectively impossible on bitcoin and ethereum. And it requires extraordinary expertise and resources.

When it comes to crypto payments, chargebacks don’t exist. Which is obviously a big deal given that chargebacks cost merchants $35 billion in 2021.

“It takes 10 minutes to confirm, but the transaction’s instant,” Stephen Pair, CEO of crypto payments technology firm BitPay, told PYMNTS’ Karen Webster earlier this year, noting that the 10-minute gap is largely invisible on BitPay. “It takes 10 minutes to confirm and to make that payment final. It takes Visa and MasterCard 90 days to do the same thing. So, bitcoin is way faster.”

That’s one reason Pair believes that “more and more companies are going to prefer it [cryptocurrency] as a payment method” in the long term.

Leading U.S. cryptocurrency exchange Coinbase, which has a payments processing division for merchants, puts it this way: “Because cryptocurrency transactions are irreversible, your payments are protected from chargebacks. This also discourages chargeback fraud. If a customer wants a refund, they must contact you directly to complete this process.”

Or contact their shipper for a somewhat onerous process of getting damaged goods covered when a package arrives looking like it was run over a few times before being delivered.


Visa Announces Changes to Compelling Evidence Rules in Chargeback Disputes

August 4, 2022

Chargebacks are often the first sign a merchant gets that fraud has taken place, but they can also indicate other problems, including friendly fraud, where the merchant is not at fault and wishes to challenge the disputed transaction. With billions of cards in circulation globally, Visa’s rules around chargebacks are closely watched by merchants. The company recently announced it will be changing the rules regarding compelling evidence (i.e., evidence merchants can provide Visa that could prove the transaction was not true fraud, resulting in a shift of liability for the lost funds to another party). The company expects the new rules to go into force on April 15, 2023.

Visa has been allowing merchants to provide compelling evidence to fight chargebacks since 2013, but the process has often been fraught with confusion and frustration for merchants. The company has made adjustments to the process several times, but said this is the first major change to the compelling evidence rules since 2015.

The new rules require, after ascertaining that the merchandise or services were delivered, that compelling evidence comprises at least two pieces of information from a list including IP address, device ID or fingerprint, shipping address and account login (and at least one of the two pieces must be either IP address or device ID). Additionally, merchants must connect the account used in the disputed transaction to two other transactions older than 120 days that were not reported as fraud.

While these requirements are more extensive than the current ones, under the new rules, if they provide the required information and the conditions are met, Visa says the liability for the disputed transaction will shift to the issuer.

Industry reaction to the changes has been mixed. While most merchants are pleased that Visa has acknowledged the problem friendly fraud has become and tried to address it with more certainty around the chargeback process, many feel meeting the higher standard will result in losing more disputes.

Card Not Present will have more on the prospective changes from Visa in the coming weeks, so stay tuned.