• Josh Cohen

How to PREVENT Chargebacks with PAAY's EMV 3DS

Updated: Apr 12

Before I dive into how you can prevent chargebacks, first we need to understand what exactly is a chargeback? 

It all started in the 1970s. At the time, credit cards were not popular yet in the U.S.  The primary reason for this was fear. Consumers were simply afraid of being ripped off, either by criminal fraudsters or by dishonest merchants. As a result, the Fair Credit Billing Act of 1974 was signed, giving credit card providers the right to perform chargebacks on disputed card transactions. 

Here’s how it works:

1. The consumer calls his or her issuing bank to dispute a transaction.

2. The issuing bank assigns a reason code to the dispute and talks about the charge to the merchant’s bank otherwise known as the acquiring bank.

3. The acquiring bank reviews the claim.

4. If the claim has merit, the acquirer takes the money from the merchant’s bank account, returns it to the cardholder, and charges the merchant a chargeback fee.

For consumers, having the ability to charge-back created peace of mind. For merchants, however, it led to stress & lost revenue. As a merchant, you lose the revenue from the sale, you lose the merchandise, and you’re paying a fee of $25+. Plus too many chargebacks on your merchant account will result in your bank shutting you down. The card networks allow merchants to challenge these disputes and potentially win back the lost funds.  However, more often than not, issuing banks side with their cardholders and the merchant is stuck paying the bill.  

In essence, chargebacks are good for consumers, they’re good for the card networks like Visa and Mastercard because everybody uses their cards, but they are NOT good for e-Commerce merchants.  

So how can you prevent chargebacks?

Remember the days at the grocery store when the cashier would ask to see your ID when you used your credit card? If you’re wondering why they don’t do that anymore, it’s because the grocery store is not liable for card-present transactions as long as you have the EMV chip. That means you could go to the grocery store, spend $100, tell your bank 3 weeks later that it was fraud, and instead of the merchant being forced to refund the transaction, the issuing bank pays you.

However, for Card-Not-Present (CNP) transactions, the liability of every single transaction is on the merchant.  So, if you own an eCommerce store, then your entire business is at risk of being charged back. 

This is where PAAY’s EMV 3-D Secure comes into play:

PAAY’s EMV 3-D secure takes that chargeback liability away from over 70% of transactions and puts that liability back onto the issuing banks of the cardholders by allowing the issuing banks to authenticate shoppers on the checkout page.  

Let’s say I’m buying something from your eCommerce store with my Chase Sapphire® Preferred card.  Chase is my issuing bank and Visa is the card provider. As soon as I input my credit card number and expiration date on to the page, PAAY’s javascript SDK sends that information along with the amount of purchase to Chase bank.

Chase knows everything about me as a cardholder and they compare my saved buyer history against the data associated with the transaction. For instance, my IP address, time of day, type of product, device used for checkout are all considered in this algorithm.  If the transaction looks authentic, then without any popups or friction the issuing bank gives the thumbs up by sending back a CAVV, an ECI, and an XID to the checkout page.  

When I click buy, those 3DS tokens get sent along with the other payment info to the gateway and the processor.  Let’s say 3 weeks later I call my bank to dispute the transaction, I may get my money back, but the money is not paid for by the merchant the way a traditional chargeback would be but instead is paid for by the issuing bank.  The chargeback does not count against the merchant’s hard count, and the merchant does not pay a chargeback fee.  

It's as simple as that.

3-D Secure is the only fraud tool that can shift the liability for CNP chargebacks off of merchants and onto the bank.

If you’re interested in learning more or just trying the solution, let’s talk.

Here’s a link to my Calendly. You can also email