Don’t Let Your Business Fall to Fraudulent Activity this Holiday Season

Fortune Magazine recently shared that The National Retail Federation believes this year’s Black Friday to be one of the most profitable yet, as they estimate 137.4 million shoppers will be competing for coveted gifts and products.

“The National Retail Federation expects 137.4 million Americans to shop online or hit stores over the four days, up from 135.8 million last year, according to a survey released Friday by NRF and Prosper Insights & Analytics. That forecast would hint at a strong start to the holiday season if it proved true.”

With many more individuals shopping online and by mobile than ever before, and hurried customer service during the busy holiday season, retailers need to be on the look-out for friendly fraud and investing in solutions to eliminate their risk.

With the ever-evolving world of online shopping, security risks and fraud are two things that merchants must be careful to take into consideration for the health of their business. With both immense sales and risk at play, it’s important that companies know the full-picture of how they can protect themselves and their customers during this busy holiday shopping season.

In 2012 alone, The National Retailer’s Federation estimated that “friendly fraud” (or chargebacks) cost American businesses over $11.8 Million. With over 25% of total ecommerce loss attributable to “friendly fraud” it’s become a problem no retailer can ignore.

The Fair Credit Billing Act of 1974 solidified a way for consumers to combat fraud or misleading products: Chargebacks. When the Act was signed in 1974, the payment and processing landscape was different- much slower and more relationship-driven. What started as protection for the consumer has slowly evolved into a tremendous business risk and hassle for retailers. Now that consumers can use a chargeback to dispute a credit card transaction, it’s become easier than ever for consumers to replace a return, with a chargeback. In fact, at Verifi, we’ve found that up to 86% of cardholders bypass the merchant, instead of calling the issuer directly to inquire about or dispute a charge on his/her statement.

Friendly Fraud and the Holiday Season

Large bursts of online shopping activity bring something that can complicate and hurt small businesses: Chargebacks and fraud.  Online fraud or chargebacks deeply cut into a retailer’s finances and the consumer’s trust of the retailer. Retailers typically see three main disputes associated with one-time sales or holiday shopping. These include instances of friendly fraud, merchant error or processing errors and criminal fraud.

In many cases, cardholders seek to game the system, experience buyers’ remorse or simply experience billing confusion, resulting in chargebacks and escalating fees for everyone involved. This is causing many merchants and businesses to look into simplified solutions to address issues of fraud and errors.

Chargebacks and friendly fraud costs businesses much more than just lost products or services. With shopping happening more and more on mobile platforms, many experts claim the cost of online fraud is higher than through other forms of payment. Forbes explained in April 2015:

“When a customer conducts a fraudulent transaction, a retailer loses the merchandise, as well as the cost to prepare and ship that merchandise. As fraud becomes more prevalent, online merchants are tasked with trying to keep up with the latest techniques, forcing them to constantly pour money into fraud detection and prevention.”

Protecting their businesses: 3 things retailers must know

With the added security and benefit of a payment system, businesses can also minimize their risk these three ways:

  • Offer a great customer experience. Accenture completed a recent report that found 52% of individuals have switched business providers due to poor customer service. Even more so, consumers who felt taken advantage of, or who didn’t have a relationship with their provider, simply called their bank to issue a chargeback, or to have their bill corrected- bypassing the merchant- completely!
  •  Accurate product descriptions and an easy-to-find return policy can help businesses navigate the holidays with more ease. Most consumers want to be able to find what they’re looking for in a few clicks. Help heighten their purchase experience online and in-store by providing accurate information about purchasing and returning items.
  • Dig deeper into consumer reasons for chargebacks. Since chargebacks are often initiated with reason codes, (or the codes you’ll see from credit card retailers as to why the customer feels they shouldn’t pay for the service or item,) it’s important to reach out and do as much research as you can to determine if the code is accurate.

A Note on Card Statements and the Default Billing Descriptor

While the economy is far better than a few years ago, customers still examine their activity statements with a fine-toothed comb to ensure that that there has been no fraud associated with their account. Transactions and their corresponding billing descriptors are routinely scrutinized and within the span of a few minutes, a statement can either be filed away or – if there are unknown or unrecognizable descriptors – suspicious transactions are marked for closer scrutiny- often costing the merchant in the long-run.

By offering helpful explanation on receipts or credit card statements, merchants can mitigate their own involvement in over $40 billion chargebacks that happen annually.  Retailers can eliminate the complexity of consumer scrutiny by offering clear and detailed descriptions of what the charge was for.  Remember, an abbreviated company name and date on a purchase may not be enough to jog a customer’s memory of what they purchased and may start the process of a chargeback.

It’s highly recommended that merchants offer a toll-free number on the billing statement for consumers to contact with questions. Ideally, this toll-free number should connect the cardholder to a live person (as opposed to a time-consuming phone tree). The live person should be qualified to address any questions and – if needed – make adjustments to the transaction before the matter is referred to the issuing bank- eliminating the risk of chargebacks and friendly fraud.

Smart Solutions for Merchants

Today it’s also possible for a post billing chargeback notification platform to process hundreds of thousands of cases monthly and to enable near real-time collaboration for both fraud and non-fraud chargeback disputes. By integrating directly with card issuers and redirecting disputes from the issuer to the merchant for resolution, disputes can be resolved before they escalate and become chargebacks.

For merchants who wish to strengthen their risk management (and counter friendly fraud) the ideal line of defense permits merchants to provide insights into the cardholder’s order by providing such information as shopping cart level data, merchant details or even the device used to make the purchase through the financial institution’s platform at the time the dispute arises. This deeper level of data can help cardholders better understand their purchases and avoid filing false cases of fraud that result in lost sales.

An order insight-approach can enable the provisioning of this type of information between merchants and issuers to provide the cardholder with the information they need to remember the charge, when calling the issuer’s call center. This approach enables the issuer to validate the transaction and dissuade the cardholders from “gaming the system” or claiming fraud when none exists.

Businesses and consumers can win when customer service is placed first and merchants can avoid costly fees, fines or penalties. In fact, even when investing in more robust payment processing software, issuers can experience lower operating expenses while supporting cardholder satisfaction through timely resolution- keeping friendly fraud at bay and prices lower- especially this holiday season.

Matthew Katz is CEO of Verifi

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