It is because of the internet that we all have jobs here at Instabill — that’s providing online payment gateway services.
Compared to 20 or 25 years ago, the impact of the internet has been an absolute boon to certain industries, enabling consumers to travel, to meet people, to play games, enjoy entertainment and accomplish many, many tasks much easier (like less trips to the Department of Motor Vehicle).
Simultaneously, it’s no secret that cyber world has also created major headaches for specific business types, the first of which is e-commerce fraud. There are a handful of industries that have it far more difficult than others.
Since we concentrate on industries considered high risk, we often wish those industries could get a little more flexibility or leeway from acquiring banks and the credit card issuers when it comes to fraud and chargebacks, but it’s highly doubtful in the current climate. The banks and issuers tolerance for such is waning.
A personal story: The moment I realized the credit card brands had had enough
By now, it’s safe to say most consumers have been victims of credit card fraud or have had some type of personal information compromised. My first time came in January of 2014, when my credit card issuer telephoned me on a Sunday afternoon to confirm a purchase — a Dell desktop computer, valued at more than $1,500.
I knew nothing about it.
My credit card issuer did its due diligence, erased the charge from my account, and (I assume) began an investigation. I had never made such an expensive purchase online, there is nothing close to it in my purchasing history, and I thought that was that.
Two weeks later my issuer called me back to say the merchant, a Dell reseller, confirmed the purchase of the desktop was legitimate, but I argued against it. Quite honestly, I was taken aback by my issuer’s initial reluctance to believe my side. I did, however, convince the representative when I asked her to tell me where the desktop was shipped (a midwestern state), then to carefully look at my address (coastal New England).
Nowadays, I understand my issuer’s reluctance. I honestly get it. Merchants who have an online presence are getting nailed by friendly fraud cases similar to mine, some more than others.
The industries struggling with friendly fraud
Online dating and online gambling
We group these two industries because merchants in both are fighting similar battles: chargebacks and friendly fraud. We hear the same stories:
- A consumer who places several bets online only to suffer losses. At a loss for how he will explain the losses to a spouse, the consumer fraudulently files a chargeback, claiming his credit card was stolen, that it wasn’t them which placed the bets.
- Similarly, it’s common for married men and women enroll in online dating services seeking to have an affair. When one spouse is caught, they claim their credit card was hacked or stolen, thus follows a chargeback.
- Additionally, a common story is a consumer enrolling in a subscription-based online dating business, but cancels the subscription and files a chargeback after three months, claiming the service failed them in finding a partner.
Travel and airlines
More than 90 percent of airline tickets are purchased online, meaning the airlines encounter many instances of fraud (about $1 billion’s worth per year from a recent article we read). The effect of friendly fraud among the airlines leads to increased rates of false declines — merchants declining sales due to signs of fraud — which inevitably results in loss of revenue.
The old story with airline fraud was the nefarious consumer who enjoys a three, five or seven-day vacation, only to falsely claim to the credit card issuers they needed to cancel the trip at the 11th hour. The airlines, however, are fighting back, now using flight manifests to account for egregious travelers.
Electronics. Clothing. Athletic gear.
Most types of online retail face a battle against fraudsters, say the numbers: 10 percent of all friendly fraud spans from online retail. There are many variations:
- Fraudsters waiting for peak shopping season — from Thanksgiving to Christmas — to strike, to remain anonymous in the holiday shopping madness. The classic friendly fraud case of buying high end products, then claiming they never arrived or were stolen at the door front, occurs too often.
- Fraudsters purchasing items with stolen credit card data, only to vanish and leave the rightful cardholder pleading with the credit card issuer (similar to my story).
- Fraudsters buying online and picking up in store (BOPIS fraud), only cancelling the purchase in the moments before pickup, before retailers are notified.
Online video gaming
Online gaming is peaking at the moment with the Fortnite craze in full-steam mode. We’ve heard stories of ardent gamers reaching the end of their favorite games, in need of credit card data to maintain the subscription. What do they do? ‘Borrow’ mom or dad’s card. When either parent notices the charges on their monthly credit card statement, the usual response is to file a chargeback.
Event ticketing is a subject on which we’ve blogged extensively — the amount and variations of fraud are rampant in the industry. Among the most common include:
- Scalping: One of the less harmful tactics, this involves the classic act of purchasing bulk tickets online, then selling them for a significant markup.
- Counterfeiting: Some tickets bought online are relatively easy to duplicate, to be sold to unsuspecting event-goers, only for the fraudster to disappear with the event-goer’s money.
Merchants ascertaining the buyer and consumers knowing the seller is paramount in event ticket sales.
Online payment gateway services: High risk and high reward
It is true that certain high risk industries suffer from fraud more than others. From our experience in offering online payment gateway services, however, merchants who take the time to mitigate fraud attempts can enjoy lucrative businesses.
Our job is to help merchants get there by offering the resources they need: credit card processing, check payments and mobile wallet solutions as well as the fraud and chargeback protection to go with it.
We prefer to start the online payment gateway services relationship with a conversation. Our merchant account managers are available Monday-Friday, 8 a.m. until 6 p.m., US eastern time.