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Tuesday, March 30, 2021

Friendly chargebacks rising amid COVID

The Center for Disease Control and Prevention reported on March 28, 2021, that 180,646,465 U.S. citizens have received at least one dose of the COVID-19 vaccine. Several states have eased restrictions on indoor dining and public gatherings. Despite these positive indicators, a new study by Chargeback Gurus, titled The State of Chargebacks During the Covid-19 Pandemic, warned of persistent pandemic-related threats.

Noting that chargebacks have increased by 800 percent during the COVID-19 pandemic, researchers at Chargeback Gurus found 75 percent of customer disputes and inquiries are directed at card issuers and not merchants. In addition, refunds increased 77 percent in February and March 2020 and remained at higher levels than in 2019, they stated.

Protecting Digital Innovation: Emerging Fraud and Attack Vectors, published Jan. 13, 2020, by Javelin Strategy & Research and Kount, correlated an uptick in "friendly" fraud with surging online activity during the 2020 pandemic. Researchers found a 55 percent increase in buy online-pick up in store (BOPIS) fraud in 2020, with fraudulent chargeback claims over 200 percent between January and June 2020.

Newly minted fraudsters

Additional data from the Chargeback Gurus study found friendly fraud spiraled upward during the pandemic, when opportunistic consumers took advantage of business shutdowns and disruptions. Researchers expect these trends to continue as ecommerce volumes continue to scale.

"When businesses and consumers are dealing with disruptions to normal operational processes, controls are suspended, and working conditions are unfamiliar, fraudsters can take advantage of the confusion to deceive and steal," Chargeback Gurus researchers wrote. "Even consumers who wouldn’t want to think of themselves as fraudsters may rationalize unethical behavior on the grounds that 'nothing is normal' anymore."

Srii Srinivasan, chief executive officer at Chargeback Gurus, stated that combining accurate data analytics with machine intelligence and human expertise will create the best strategy for preventing and winning friendly fraud chargebacks. "Merchants need to identify the root causes of chargebacks to create a strategy for mitigating fraud," she said. "They also need to analyze internal business processes to identify vulnerabilities and protect themselves."

Top fraud trends

Srinivasan additionally noted the top three pandemic-related disputes that Chargeback Gurus specialists have seen are force majeure chargebacks, BOPIS chargebacks and fulfillment-related disputes. Retailers have been particularly hard hit, she noted, because they were unable to compete with fulfillment giants like Amazon. And even Costco has not been providing BOPIS options to its members, she added.

"Managed service providers like Chargeback Gurus can help merchants' friendly fraud challenges by providing additional tools and strategies," Srinivasan said. "For example, we have a proprietary tool called Root Cause Analyzer that helps merchants identify the actual root causes and take informed decisions to prevent disputes. We combine machine intelligence with human expertise to identify these root causes and we also collect more than 40 data points and provide numerous reports to analyze chargebacks from all angles."

Javelin and Kount researchers recommend that organizations engage with fraud experts early on to ensure that their products and services are being designed with applicable fraud mitigation tactics, tools and safeguards in place. "Engage with fraud teams through the product development process," they wrote in the 2020 fraud study. "Consultation with fraud management and cybersecurity teams from the earliest stages of product and feature development is key to keeping organizations from scrambling to react to heavy fraud losses after a product goes live."

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