Retail
Are chargebacks too easy to raise? In 2022, shoppers lost $5.8 billion to fraud, a 70% increase from 2020. As a protection mechanism, chargebacks allowed consumers to reclaim at least part of this staggering figure, albeit at the expense of the business that processed the fraudulent transaction. However, criminal fraud is only one reason
for a consumer to dispute a transaction with their issuing bank. As mentioned, chargebacks can be utilised by consumers for when products don’t arrive as intended or at all, or when a brands’ customer service fails to address a customer’s problem, for example. Some consumers also use chargebacks to cancel recurring payments, such as media subscriptions, rather than go through the cancellation process with the retailer, oſten characterised as first-party misuse. Initiating a chargeback is relatively simple, and consumers don’t
need to collect evidence that any given charge is fraudulent or that an item didn’t arrive; the transaction is simply reversed, penalties and fees are assessed, and the card network and banking institutions will establish the facts aſterward. With the current process, it is easy to see how chargebacks may favour consumers (through no fault of their own) and how this process, oſten unintentionally, can be abused.
How can businesses decrease the likelihood of invalid chargebacks? Being easily accessible to consumers, analysing transaction data, implementing a chargeback alert system, and communicating with banks and processors are all viable means of helping to thwart the growing trend of friendly fraud. When it comes to understanding the source of the problem, card-
not-present transactions are most at risk, with studies showing a sale made online is 50 times more likely to fall victim to friendly fraud than instances where the cardholder is physically present. Mitigating these occurrences is not only recommended for faceless transactions, but vital. First, brands should provide customers with a clear and easy-to-
understand return policy, as well as a customer service system that makes it easy for shoppers to contact your business with any questions or concerns. Different industries will need different policies, but being seen as easily accessible to the customer will encourage them to resolve disputes with you rather than their issuing bank. As a rule of thumb, if you are open for business, you should be open to serve your customer. Whether this is through chat, email or traditional phone support, ensure your customers are aware of how to get in contact with you if they have any query or issue. Brands should also engage in a routine and timely response to each
and every chargeback received. Whether the chargeback is valid or invalid, investigating each case is paramount. For businesses that struggle with the short timeframes and manual processes, there are chargeback management solutions that can dramatically improve efficiencies. Utilising tools to help manage these tasks ensures brands can access and attribute valuable feedback, helping retailers make better business decisions and ultimately improving the customer experience. It is also important to explore pre-chargeback notification systems,
which may provide an opportunity to resolve disputes before they become chargebacks. Tese solutions allow brands to receive
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information about new dispute claims, which they can proactively address with a prompt response. Feedback is crucial in this process, especially considering the vast majority of friendly fraud chargebacks are unintentional fraud claims—simply because the consumer didn’t recognise the description of the charge on their card statement or banking app. By corresponding and exchanging
information, whether it’s acknowledging
chargebacks filed due to merchant error or providing the bank with feedback on a mistake made by the consumer, banks and businesses can work together to paint a more accurate picture of friendly fraud that will help propel the payments industry in the right direction.
Data is key in reducing chargebacks Tere is a common thread with friendly fraud management strategies, and that’s the sharing of pertinent data. Automated anti-fraud systems rely on what data they can find, which may be thousands of individual signals, but can never be completely accurate without real-time information. Similarly, in chargeback processes, incorrect decisions can happen because of missing information. For example, invalid chargebacks could stem from individual customers not being able to see that their order hasn’t arrived yet or not being able to identify a charge on their card, and at a higher level, chargebacks can sometimes not be challenged effectively because of a lack of feedback from both customers and payment schemes. Most of the work of processing chargeback claims has now been
delegated to automated systems, and that is unequivocally a good thing. However, the flipside is that technology systems are only as good as the data that is available to them. Te industry requires new technology that helps exchange data to close informational gaps, making payments faster, easier, more secure and more transparent. Both consumer behaviours and technology are constantly evolving,
which means new and rising chargeback threats appear daily. Businesses need an effective chargeback management strategy that is flexible enough to identify new trends and techniques, adapt to new technology or threats, and change with the ever-evolving landscape that is the payments industry. Combined, this can help curb the rise in chargebacks—both fraudulent and legitimate—and the impact on businesses themselves.
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