By Suresh Dakshina
Without significant policy upheaval, chargebacks are here to stay. If you or your merchants adopt a strategy of writing chargebacks off as a cost of doing business and hoping external forces will somehow stem the tide, you may find yourselves submerged in a flood of [friendly] fraudulent chargebacks carrying away your rightfully earned revenue. Chargeback rates are rising by as much as 20 percent per year in certain industries. Furthermore, the average chargeback costs merchants up to twice the original disputed transaction amount. According to a recent study (Javelin Strategy & Research, 2018), chargeback rates are at their highest point ever, and the trends in ecommerce and payments fostering this growth show no signs of reversing anytime soon.
At the same time, consumers are becoming exceedingly comfortable with the highly accessible chargeback process, increasing the likelihood that they'll turn to it as a first response to an unsatisfactory experience. Worst of all, fraudsters are aware of how elegantly simple it is to abuse the process and defraud merchants lacking an effective system of chargeback defense. Given these facts, the importance of having a comprehensive, up-to-date strategy for preventing and fighting chargebacks is crystal clear. Merchants must intimately understand what they are up against, and how to deal with them properly.
Everyone's favorite misnomer and least favorite form of chargeback-related fraud, so-called friendly fraud, doubled in the last four years, and our data suggests this statistic is still on an upward trend. Friendly fraud may take its name from the fact it can be perpetrated unwittingly, by customers who don't fully comprehend the fact that they're engaging in an unlawful practice, but as we all know, fraudsters deliberately employ friendly fraud as a smoke screen with which to cheat merchants.
Overall, chargebacks served their purpose for a season and helped to increase ecommerce consumer confidence. In fact, our ecommerce economy would not be where it is today without consumer protections in place to combat the early '90s fraud epidemic. We can take some comfort in the knowledge that chargeback safety nets probably saved us from the very creative rise of the "Prince of Nigeria." The process has outgrown that function, though. Does it protect consumers? In some cases, yes, but we know now it is being overwhelmingly abused as a form of fraud. For everyone from digital cartels to video game loving kids, chargebacks have become a tap to siphon funds from merchants on a global scale.
Educate. We need to teach our customers in a way that helps to shape the public opinion. Take Google's approach for example. Rather than simply fight the chargebacks, we need to proactively teach our customers the law is being broken. Here's a quote from Google's support team that exemplifies how that company is addressing chargebacks with a similar approach:
"Your Google payments profile was temporarily suspended because you reported to your card issuer that at least one of the charges on your Google account was fraudulent. (Banks call these "fraud chargebacks.")
"Because fraud chargebacks usually occur when a payment method is used without the account owner's authorization—indicating that the Google account has been compromised—we automatically suspend accounts that receive chargebacks to prevent further potentially fraudulent charges.
"With regard to your account, however, our security team has found these charges to be legitimate. Their review of your account found no signs of unauthorized logins or your account having been taken over by someone else.
"If there are further fraud chargebacks for legitimate charges, we reserve the right to ask for reversal of these chargebacks. Failure to reverse the chargebacks will result in the permanent closure of your payments profile."
Educating customers is great for a number of reasons, but the main takeaway here is that the customer probably already knew what they were doing was wrong, but they are now aware you are paying attention. After receiving such a note, they will be less likely to repeat the behavior and may discourage others from committing this type of fraud.
Fraudsters are very aware of businesses that don't fight their chargebacks. When a company makes itself an easy mark by writing chargebacks off as a cost of doing business, these fraudsters will keep making and disputing purchases for as long as they possibly can.
This holiday season, your merchants are going to see more chargebacks than ever before. Urge them to use this as a teaching opportunity in the following ways:
Suresh Dakshina is co-founder and president of Chargeback Gurus. A pioneer in data analytics and industry-specific risk management, he is a certified ecommerce fraud prevention specialist and Certified Payments professional. He understands first-hand the challenges that business owners face, especially when it comes to chargebacks and fraud. Contact him at firstname.lastname@example.org.
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