Friendly fraud continues to wreak havoc on e-commerce businesses and, for several reasons, the e-commerce landscape is getting more stringent with new chargeback and fraud thresholds. In the seminar entitled, Reduce Friendly Fraud Damage Through Merchant-Issuer Collaboration by Kristian Gjura at MPE 2016, the causes of friendly fraud are examined as well as how the merchant and issuer can cooperate to cut fraud losses.
Some Ugly Friendly Fraud Facts
In a 2015 study by LexisNexis, lost revenue from friendly fraud has risen steadily three straight years despite the introduction and use of fraud tools by merchants. Friendly fraud lost revenue was at 0.51 percent in 2013, rose to 0.68 in 2014, then shot up to 1.32 percent in 2015.
Figures such as this no longer sit well with the credit card issuers. Visa announced in April of 2015 that it was restructuring its chargeback monitoring threshold across the board from 2 percent of sales and/or 200 chargebacks per month to 1 percent, 100 per month.
Perhaps more alarming, online fraud fighter Ethoca studied 920 fraudulent transactions of a popular digital goods merchant and confirmed that 661 of them were friendly fraud cases.
5 Merchant Behaviors That Contribute to Friendly Fraud
Mr. Gjura, who is the Sales Director of Ethoca U.K., identified five merchant behaviors that contribute to causes of friendly fraud.
- Advertising Practices: False advertising is an invitation to chargebacks and friendly fraud.
- Upselling the Product or Service: Over-promoting and inflating the results of a product or service are also no-nos.
- Lack of Persistence: Some card issuers, particularly Visa with its ‘no liability’ policy, make it doubly difficult for merchants to dispute friendly fraud cases. Merchants need to be persistent in maintaining important documents (billing descriptors, shipping records, phone records) to defend themselves.
- Billing Descriptor: Make certain it is clear so that the consumer can easily recall making the purchase.
- Behavioral Impulse: Unfortunately, consumers are more likely to call the number on the reverse of their credit card to file a chargeback rather than calling the merchant. Adding a phone number to the billing descriptor is another step in the right direction.
Merchants, Processors and Issuers Need Collaboration
In the event of confirmed cardholder fraud, the credit card issuer should notify the payment processor, which in turn alerts the merchant. The merchant halts the order while the processor then notifies the issuer of the outcome.
Issuers are more likely to recognize fraud much quicker than merchants. If issuers and merchants communicated better, said Mr. Gjura, together they could reduce friendly fraud instances by 28 percent based on what the issuer has identified as fraudulent.
As a merchant, who do you do to combat friendly fraud? Leave a comment below.