Friendly fraud is on the rise. Chargeback costs eat away at revenue and productivity for merchants and issuers, and the threat of chargeback fraud is a constant worry.
It’s time to end the practice of merchants and issuers operating in silos.
Despite these liabilities, merchants and issuers continue to operate independently. In the current chargeback fraud model, cardholders typically contact issuers first with a complaint. Lacking adequate information about the purchase, issuers initiate a chargeback. The customer, after all, is always right and by extension must be trusted. This leaves the affected merchant to deal with the chargeback dispute with little choice but to accept it as a cost of doing business.
It doesn’t’ have to be this way. In an era of instant communication and easy collaboration technologies, it’s time for merchants and issuers to collaborate so fraudsters don’t continue to make gains.
Friendly fraud and chargeback fraud are not going away. A recent Nilson Report estimates that the financial impact of chargebacks could reach close to $30 billion globally by 2020. Couple this with a 2015 Javelin Research Report that highlights that fraud and chargeback management drains 13 to 20% of organization resources and you have an industry-wide problem merchants and issuers must solve together.
Friendly Fraud Is Too Easy
Friendly fraud is the easy way-out for cardholders. Whether they regret a purchase or simply choose to steal from the merchant, it has become the de facto method to regain funds. particularly for consumers who make card-not-present (CNP) purchases.
It requires little effort for cardholders to use the phone number on the back of their credit card to initiate a dispute with their issuer. In their minds, this is their best and most obvious way to get their money back.
Accepting that chargebacks and friendly fraud are a cost of doing business is not sustainable. When merchants and issuers collaborate and share data, they catch friendly fraud early and prevent unwarranted chargebacks. Fortunately, tools and technologies are readily available to make collaboration possible.
Fighting Fraud with Shared Data
The rise of CNP purchases and e-commerce sales has created an enormous amount of data that merchants and issuers can leverage together to detect and prevent fraud. The rise in machine learning, artificial intelligence, and other advanced fraud detection techniques – such as biometrics, geo-location analysis, and detailed customer data – can and should be used to full potential. By providing better insight into cardholder purchase history, merchants and issuers can erase many of the underlying issues contributing to friendly fraud.
They key to solving the merchant-issuer communication gap is in proven payment solutions that make collaboration possible.
When relevant purchase, cardholder, and transaction data is available at the initiation of a dispute, chargebacks are much more likely to be prevented. This can only happen when merchants and issuers collaborate.
Effective fraud prevention and detection requires real-time collaboration and data sharing. Contact us to discuss how you can benefit from Verifi’s Order Insight, and put a stop to this endless cycle of friendly and chargeback fraud.