In response to an increasing number of consumers making erroneous chargeback claims that a good was never received or a transaction was never authorized, issuing banks have adjusted their chargeback procedures to demand more from consumers initiating the chargeback while also ruling in favor of the merchant more often than before.
Friendly fraud continues to adversely affect merchants’ bottom lines as consumers are often able to abuse the chargeback process for personal financial gain. In CyberSource’s 2012 Online Fraud Report 60 percent of merchants surveyed believe friendly fraud has increased over the past two years. A Lexis Nexis survey found that 23 percent of fraud losses from large eCommerce sites come from friendly fraud. As more and more consumers have learned to exploit their issuer’s chargeback and dispute process, which tends to favor the issuing bank’s customer over the merchant in question, issuers have adjusted by becoming more diligent in the information they collect.
One change is that an issuing bank may now ask a consumer to sign an affidavit or provide evidence that fraud has occurred. Too often consumers would argue that they never made or authorized a charge to have the transaction reversed. If the consumer is claiming that the charge is fraudulent the issuing bank may require the customer to sign an affidavit attesting to this and require it to be notarized. Many friendly fraudsters repeat their schemes because there is no real threat of being charged with a crime, but putting such fraudulent chargeback claims on a notarized affidavit is a criminal offense that will deter many would be friendly fraudsters.
More evidence that issuing banks are turning the table against friendly fraud is the fact that merchants are now winning a higher percentage of chargeback re-presentment cases. When a merchant disputes that a chargeback was in fact a legitimate transaction, the issuing bank acts as the arbitrator between the merchant and customer in a process known as re-presentment. A Merchant Risk Council survey found that merchants win re-presentment arbitrations around 44 percent of the time now, up from only 30 percent a few years ago. While the chargeback process still tends to favor the customer over the merchant overall, it is apparent that issuing banks are recognizing the fact that friendly fraud costs merchants billions each year by increasing measures they can take to prevent it and holding consumers accountable for their chargeback claims.
For more information: ‘Friendly fraud’ a hassle for you, too