Preventing Friendly Fraud in Holiday Sales

The big push. All hands on deck. Make or break the year. Yes, the holiday shopping season is soon upon us, and merchants are preparing to claim their fair share of sales. Deloitte’s annual forecast for the holiday season predicts holiday retail sales could top $1.10 trillion this year, an increase over the $1.05 trillion in sales between November 2017 and January 2018, as reported by the U.S. Commerce Department. Often lost amid this hyper-focus on sales is the need to protect against friendly fraud, when customers dispute legitimate transactions and obtain refunds for purchases they actually made.
While a robust holiday shopping season can do wonders for revenue, it can also result in increased chargeback headaches and costs for merchants and issuers, particularly if they don’t have the right processes in place to reduce billing confusion and prevent fraud. To prevent chargebacks, the best defense is a good offense, starting with implementation of a shared-data platform.
Holiday Shopping Drives Friendly Fraud
According to the LexisNexis True Cost of Fraud Study 2016, approximately 28% of total fraud losses were the result of friendly fraud and chargebacks. In contrast, “true fraud” accounted for roughly 24% of those losses. Given the volume of holiday sales, it is not surprising that friendly fraud is at its peak during this same period. Consumers receive their credit card statements and the reality of their expenditures triggers buyer’s remorse. Subsequently, they contact their issuing bank to relieve their pain by getting some charges reversed. Without detailed transaction information and fearful of losing valued customers, the issuer often has no choice but to offer a refund and initiate a chargeback.
For many businesses, this sharp increase in friendly fraud can be extremely painful with the resulting chargebacks that follow in January. Adding to the misery are customers disputing legitimate transactions due to billing confusion, such as the merchant’s name on the billing statement not matching their trading name. In all, these disputes that escalate to chargebacks  increase loss of revenue and merchandise, compounded by the fines and fees applied by acquiring banks.
How Shared-Data Platforms Prevent Friendly Fraud
The bottom line is that it’s the merchant’s responsibility to adopt strategies that protect them from a chargeback system that has not evolved to keep pace with the increase in multiple payment channels and e-commerce. Rather than take a siloed approach to managing consumer disputes, merchants and issuers must collaborate and share transaction information to resolve issues at the earliest possible stage, to deliver a better customer experience and prevent chargebacks.
Transaction information can include:

  • Product or service purchased
  • Transaction amount and date of purchase
  • Payment method
  • Merchant name and contact information
  • Type of device used for purchase
  • Customer name, user name, IP address, phone number, and email address

Via their online portal and banking app, issuers can then share this information with consumers to provide clarity on questioned purchases, and provide their customer care team with the necessary data to resolve disputes quickly and easily.
In addition, issuers can use customer information to identify a suspicious pattern of behavior to flag true fraud. That information includes:

  • Cardholder transaction history
  • Previous disputes files
  • Refunds issued
  • Account delinquency

By utilizing data-sharing platforms, issuers and merchants can leverage large databases to combat online fraud. When shared between the merchant, issuer, and customer, this data can be instrumental in quickly determining whether a transaction is legitimate or should be identified as a compromised account.
Sharing Data as a Pre-Emptive Strike
With the holiday shopping season fast approaching, merchants and issuers should consider implementing shared-data platforms now. Given the inevitability of friendly fraud and disputed transactions, having systems in place before the new year will go a long way towards making January a month of celebration for a robust fourth quarter, rather than thirty-one days of misery.
Contact us to learn how Verifi’s collaboration solutions can help you maximize profits from holiday sales by preventing friendly fraud and chargebacks.