Chargebacks do not always need to end in dispute

While eliminating or preventing  chargebacks altogether would cause merchants to turn away good sales, some chargebacks could and should be prevented. While some friendly fraud is intentional, a survey found that 81% of consumers listed convenience as the actual reason for initiating chargebacks. In the same survey almost half of the customers polled did not even know chargebacks were being filed. Many assumed the bank was simply contacting the merchant on their behalf.
When merchants work directly with issuing banks to access critical chargeback dispute data, customers and merchants can settle chargebacks without the chargeback process. Since there is a limit on the ratio of chargebacks to transactions for any given merchant, merchants should try to resolve chargebacks in this manner.
 

Frank Stornello, Chief Marketing and Strategy Officer at Verifi Inc., recommends using a chargeback notification protocol designed to catch direct response chargeback fraud post-sale.

Although online customers value security, front-end security measures frustrate them. Having to input too many details in order to purchase may cost more in lost sales than the cost of fraud. Many chargebacks can be resolved before they occur . For example, accessible customer service (the number for it should be listed on the bank statement) can help address customers’ concerns before they initiate chargebacks.  But good customer service cannot prevent chargeback fraud altogether. Merchants need to work with issuers in order to receive notice when customers initiate chargebacks.
As Frank Stornello said in Response Magazine, “Recent statistics revealed a 40:1 ratio in terms of losing legitimate customers to overly rigid front-end controls. Chargeback alerts are one way to move that to the post-sale side in order to avoid throwing the baby out with the bathwater on the front end.”

The Fraud Practice encourages cooperation between card issuers and merchants via issuer alerts or post-billing chargeback notifications. Customers often bypass merchants and directly contact issuing banks. If merchants work with a third party chargeback resolution service, the bank will notify the merchant of impending chargebacks due to suspected fraud or from a cardholder initiated dispute, allowing the merchant to address the issue before it becomes a chargeback.
Preventing chargebacks altogether is nearly impossible. Yet, many customers initiate chargebacks out of convenience. These sorts of chargebacks are avoidable through issuer keyword alerts. When issuers and merchants work together, everyone wins.

Chargeback fraud sure to rise as we move into the busy shopping season and afterward;

however, merchants should not forget about other threats lurking online. CNP fraud is on the rise and fraudsters are not being shy about using emerging technology and sales channels as their new stomping ground.
Other helpful considerations on dealing with increased chargeback fraud, fraud prevention strategies and tools:

  • Questions to consider for merchants looking at a new fraud prevention platform
  • Consider Tokenization for Added Security and to Ease PCI Compliance
  • Chargeback volumes increase by nearly 50% during the holidays but only 54% of merchants respond to chargeback requests – What gives?
  • Building a chargeback protection and prevention program

Chargebacks happen.

The holidays are especially sensitive for merchants – chargeback fraud volumes can spike by as much as 50% during this time of year. Rather than trying to prevent every single chargeback – a move that is certain to significantly dent sales – merchants should focus on using chargebacks to fine-tune front-end, pre-sale fraud prevention tools and tactics. Merchants should begin planning now to get ahead of the seasonal sales – and chargeback – rush. Take the following into consideration when thinking about chargeback fraud prevention:

Multi- and omni-channel commerce offers will be pivotal for merchants in the 2014 holiday shopping season, according to a recent article from Practical Ecommerce.

Great strategies to drive growth, especially during the holiday season,  are consumer convenience-driven promotions like free shipping, mobile promotions, in-store pickup and video of products. These strategies are usually only possible for large omnichannel businesses that have agreements with shipping companies, budget for mobile site optimization, brick-and-mortar stores, and money for video production. As a result, the overall holiday e-commerce market is likely to grow by 15.5%, but small and medium sized online businesses shall only grow by 9%.
In this environment, many smaller online-only merchants are opening brick-and-mortar stores. While customers value the benefits of physical stores, like the ability to return online purchases in store, omnichannel commerce can increase fraud risks. Small and medium sized business need extra vigilance when going omni-channel in order to ensure their customers’ data remains safe.

card-not-present
By Frank Stornello, Chief Marketing and Strategy Officer, Verifi

To improve your bottom-line results and cut chargebacks e-commerce merchants need to implement a holistic chargeback protection and management solution

that not only prevents chargebacks, but also actively reclaims lost dollars to fraudulent chargebacks. Verifi recommends six best practices for successful chargeback protection and management.
1. Improve Internal Processes
Merchants should optimize several internal processes to minimize chargebacks. For example:

  • Gather information you need to build your case when representing chargebacks.
  • Improve customer service by making it easier for customers to contact your company. Consider extending hours of operation making it easier to reach a live person by reducing hold times and automated menu options. You don’t want customers to get frustrated, hang up and choose to call their issuing bank instead.
  • Institute internal fraud monitoring that includes monitoring IP addresses or high-value transactions to prevent fraudulent chargebacks before they occur.
  • Use chargeback notifications to learn quickly when a customer is disputing a charge. Notifications enable you to address chargebacks proactively without tightening up fraud control so much that you turn away good customers.

2. Prioritize Which Chargebacks to Fight and Represent
Whatever you do to prevent chargebacks, they will still happen, so you need to identify those that are most worthy of being fought and represented based on the expected ROI. Each dispute takes time and carries a fee from your acquirer. Consider the return on time and money spent and pick your battles carefully to maximize the performance of your chargeback protection program.

 

Card-Not-Present (CNP) fraud is expected to double by 2018 in conjunction with the EMV rollout in the US.

When EMV was adopted in the UK and Australia, POS credit card fraud quickly declined. However, fraudsters migrated to the online channel causing a spike in CNP fraud. The liability for fraud shifts from issuer to merchant beginning in October 2015 with the EMV rollout.. Merchants need to work with a specialistic in order to prepare as soon as possible.
Even without EMV, online fraudsters are growing more sophisticated. Data breaches are becoming commonplace. There is no silver bullet to stop CNP fraud in this environment. Fraud poses a great risk to merchant reputation and bottom line.

The expansion and increased adoption of m-commerce is a contributor to fast-paced online spending growth.

M-commerce continues to gain momentum and visibility – more than half of Americans own a smartphone. The percent of web traffic on mobile devices is increasing every year, translating to increased mobile channel risk for merchants. By 2018 Forrester predicts mobile sales will account for 54% of all e-commerce. Merchants see this channel of commerce as a great opportunity to gain customers and customer loyalty. Unfortunately, fraudsters see these new channels to hack as an opportunity, too.
Luckily, our CEO Matthew Katz wrote an article on best practices to bring the elevated mobile fraud risk back to earth. The key is a layered security approach that uses the built-in security features common to many mobile devices.

eMarketer predicts ecommerce spending to increase from $262.3 billion (2013) to $440 billion in 2017

-a growth rate of 13.8 percent. This growth in conjunction with the EMV rollout, will contribute to an expected rise in fraud within the Card-Not-Present (CNP) channel.
This growth in ecommerce sales will largely be driven by an increase in online spending per buyer, which is on target to surpass $2,000 per year by 2018.
Multi- and omnichannel commerce offers will be pivotal for merchants in the 2014 holiday shopping season, according to a recent article from Practical Ecommerce. Small and mid-sized online retailers are projected to experience a 9 percent growth in sales, largely fueled by consumer convenience-driven promotions such as free shipping, mobile promotions, in-store pickup and other ecommerce trends. Here are a couple of considerations and resources to keep in mind as we move into this season:

  • Omnichannel present new opportunities for growth….and omni-channel fraud. Buyer (and seller) beware.
  • Learn from the ghost of data breaches past – Tokenization and Encryption safeguard your customers’ data.