Guest Post Written by: Daryn Griggs, Co-Founder, Payshield, Certified eCommerce Fraud Professional
Who Is Looking Out For eCommerce Merchants?
The events of COVID 19 have seen a massive increase in online shopping around the world including people who have never shopped online before.
Naturally with an increase in online shopping comes an increase in online fraud, and the biggest fraud increase? Friendly Fraud!
What is Friendly Fraud?
Friendly Fraud (or 1st Party Fraud as its also known) occurs when a consumer makes an online purchase with their own credit card and then requests a chargeback from their bank after receiving the purchased goods or services. If the chargeback is approved, the consumer receives a refund on their purchase and the merchant is accountable. Therefore, the merchant loses the goods/service and the money.
Not recognising the description on credit card statements is a common reason why a consumer might dispute a transaction, but friendly fraud… where a consumer knows how to “game” e commerce purchases and initiating chargebacks for reasons such as “I don’t like the colour,” “the size isn’t right,” “that’s not how it looked online” – all ultimately pointing towards the excuse “I didn’t get what I paid for.”
Consumers know their rights.
The payment networks have done a great job at educating consumers on the “Zero Liability Policy” attached to their products to give consumers confidence that it is safe and OK to purchase online because the card issuers (who make it very easy to initiate a chargeback) and payment networks “Have Got Your Back.” But what about the merchant? Who has their back?
Many people aren’t aware that unlike card present fraudulent transactions where banks “eat” the chargeback losses, this is not the case for e commerce merchants, the e commerce merchant has to wear any fraud losses themselves.
When a purchaser simply doesn’t like the look of the goods they received, in many cases the merchants have to cop the loss of product, revenue and fees they get hit with for the chargeback.
Many merchants do not fight back, they just shrug their shoulders and accept chargebacks as a cost of doing business. Their profits take a hit and if they get too many chargebacks their merchant account is monitored, suspended, or shut down. The merchant is then forced to find a higher cost alternative which puts even more pressure on profits.
In most cases chargebacks should be a last resort NOT the first course of action by a purchaser.
Larger and more experienced ecommerce merchants have teams, tools and the knowledge to deal with disputes and chargebacks, but SME eCommerce merchants do not have this luxury. Sure, their payment processor or acquiring bank will provide some tools and services to manage their chargebacks, but most of these vendors don’t go far enough to mitigate this risk or profit reducing challenge for merchants.
The merchant’s gateway or bank will go through the motions of following the payment networks dispute management process and asking for the receipts and T’s and C’s (Terms and Conditions) from merchants, but the majority of the time they look for the easiest and quickest solution and the merchant still ends up paying.
Now I am by no means naive enough to believe every merchant is squeaky clean and doing the right thing. Those merchants who intentionally do the wrong thing deserve to be brought to account for their actions. However, there is a lot more SME eCommerce merchants trying to do the right thing but struggle to deal with savvy cardholders exploiting their rights.
All ecommerce merchants will experience fraud events, so they must have a strategy to combat 1st and 3rd party fraud.
Below are some options for merchants to consider as part of their fraud mitigation strategy:
Education – This is the easiest, simplest form of action for merchants. By simply reviewing and adjusting their T’s and C’s , refund policies, shipping processes, order confirmation processes and/or asking their payment processor to change their merchant descriptor to something that is easier to interpret. Another option for merchants to consider is alternative payment channels such as bank transfer. With Open Banking rolling out around the world, Faster Payment Networks offering bank to bank payments are becoming a much more viable acceptance option for merchants to consider. Bank transfer payments do not have a zero liability policy and in fact it is typically up to the purchaser to prove their bank account was accessed by fraudulent means. Disputes will arise using this acceptance channel as well, but at least the mediation process is more fair than what exists with card acceptance. Merchants also need to be evaluating customer contact details (name, phone, email, etc.) and find unique markers that can identify the actual human behind a digital identity. Putting some of these measure in place may lead to sales insults and reduced conversions so this needs to be a careful balancing act to optimise the results.
Customer Service – Having responsive customer service is extremely important. Supporting a multi-channel customer service option that makes it easier for a purchaser to contact merchants and resolve their issues before initiating a chargeback.
Tools – There are a plethora of tools available to merchants for identity verification, fraud scoring, IP geolocation tracking etc. Identifying which tools to use can be an overwhelming task. It is key for merchants to identify the right tools for their vertical and type of potential fraud they could experience. Being able to use tools to verify identities and well-established contact points to determine a good customer versus a fraudster.
Outsourced Service Providers – A merchant could work with an outsourced service provider to assist with a fraud mitigation strategy, identifying the right fraud tools to use or even outsourcing the operational tasks on a merchants behalf such as customers service, dispute resolution and chargeback management. These type of service providers work for the merchant and provide strategies and tools to manage and mitigate fraud losses.
In summary, a small to medium enterprise eCommerce merchant should not give up on the fraud fight and feel that chargebacks are a cost of doing business. They should not have to constantly change their merchant accounts. There is help out there to assist merchants in managing ongoing threats and protect revenue. Fraud and Risk service providers are the businesses who have YOUR back and will give you the strategies, tools and know how needed to fight this ongoing battle.