Fraud Challenges Rising for U.S. Merchants

Chargebacks are rising at a rate of 20% per year; friendly fraud at a rate of 41% over the last two years – indicating many merchants are still losing the fight against chargeback fraud.

Unfortunately for card-not-present (CNP) merchants, the largest facet of retailers affected by fraud, consumer entitlement is driving the above increases as industry standards continue to be curved to consumer demands – even beyond what is logical or fair for the merchant. Chargebacks911, dispute mitigation and risk management firm, says brand loyalty management sets the stage for controlling friendly fraud, mitigating chargebacks and minimizing losses.

According to the 2016 LexisNexis True Cost of Fraud Study, the average number of monthly fraud attempts has spiked by 33% in the past year, with just under half (46%) getting past merchants’ fraud mitigation efforts.

Some say this trend could indicate late 2015 holiday sales, which would have been top-of-mind for merchants when the survey was fielded in early 2016. Nonetheless, the result is an increase in the percent of revenues lost to fraud, up 11% over the last year – largely attributed to remote channels, the primary driver of fraud increases. Remote channel merchants experience fraud 3-4 times more than point-of-sale (POS)-only retailers.

On average, US merchants reported an 8% increase in the cost per dollar of fraud losses – meaning that for every dollar of losses, merchants are losing $2.40 based on chargebacks, fees and merchandise replacement. Furthermore, the number of “successful” fraudulent transactions more than doubled from 2012 to 2016, increasing from 80 to 206 per month.

Monica Eaton-Cardone, co-founder and Chief Operating Officer of Chargebacks911, explains that today’s age of “instant gratification, immediate satisfaction and zero percent liability” is fueling chargeback increases – it is a case of customer-gone-wild, unbalancing control from companies while simultaneously fostering “consumer entitlement”:

“Yesterday’s consumer would never think of complaining about taking a few extra seconds in the checkout aisle, not being able to return a product that was used or worn, or considering that their bank needed to resolve a transaction issue because the retailer was not open to take their call at 2 a.m. on a Sunday,” said Eaton-Cardone.

She explains that today’s consumers are savvy enough to exploit loopholes, and merchants must act quickly to implement the proper approach to stop chargeback fraud among consumers who, studies show, often repeat their wrongdoings. Eaton-Cardone urges merchants to strike a balance between providing the best service possible while also mitigating risk through establishment of customer service standards that hold a brand intact, yet are consumer friendly.

“Fifty percent of the cardholders who file a friendly fraud chargeback and get away with it will do it again within 90 days; it’s imperative that merchants put a plan in place to guard against future disputes,” says Eaton-Cardone. “But an overzealous chargeback management strategy could negatively impact customers and reduce the chance of future sales.”

While ultimately there is no “fool-proof” nor static solution to chargeback fraud, Eaton-Cardone offers 3 steps to internet retailers looking to mitigate the impact of chargebacks:

Honest communication with a transparent approach is key. Properly disclose important information and communicate important details the consumer may not have noticed or may have forgotten.

Operate customer service 24/7, 365 days a year. Limiting customer service options may mean the customer will turn to their bank for resolution.

Partner with a professional risk mitigation service that utilizes a multilayered approach that employs a combination of transaction tracking, authentication and customer verification to protect the bottom line and retain customer base.

Despite the growing number of large ecommerce merchants becoming more aware and successfully mitigating chargebacks, consumer entitlement is being propagated by other sources that will carry on this rise in friendly fraud. Eaton-Cardone maintains consumer entitlement is a mindset that will have to be corrected through company brand policies with reasonable outcomes based on the situation at hand.

Partner Content

The Gift of Wow: Preparing your store for the holiday season - Netsuite
Being prepared for the holiday rush used to mean stocking shelves and making sure your associates were ready for the long hours. But the digital revolution has changed everything, most importantly, customer expectations. Retailers with a physical store presence should be asking themselves—what am I doing to wow the customer?
3 Critical Components to Achieving the Perfect Order - NetSuite
Explore the 3 critical components to delivering the perfect order.
Streamlining Unified Commerce Complexity - NetSuite
Explore how consolidating multiple systems through a cloud-based commerce platform provides a seamless experience for both you, and your customer.
Strategies for Maximizing Mobile Point-of-Sale Technology - NetSuite
Learn the top five innovative ways to utilize your mobile POS technology to drive customer engagement, increase sales and elevate your brand.