While the US enjoyed a head-start in the ecommerce race, Europe is quickly catching up. However, the boom in online shopping is exposing merchants’ vulnerability to increasing liability under the misguided label of “friendly fraud”–a type of payment dispute initiated by cardholders that ultimately renders harm to every party in the payment chain.
Fortunately, since the US served as an ecommerce frontrunner, European merchants can learn from the nation’s mistakes.
What is friendly fraud?
Friendly fraud is a relatively new concept in Europe, and stands as a threat exclusive to ecommerce. This genre of fraud derived its name from the fact that fraudsters are the actual cardholders themselves, supposedly satisfied and loyal customers who authorised the purchase.
Friendly fraudsters often use the issuer to bypass the merchant’s return policy or customer service centre. According to an eConsumerServices survey, 81% of consumers who filed a chargeback did so out of convenience. Other times, the fraud is a very intentional act; cardholders dispute transactions with untruthful claims to engage in cyber-shoplifting.
Global friendly fraud rates increase 41% annually, with Europe contributing a greater portion of activity each year. There are numerous reasons why the threat is increasing throughout Europe; it is essential for merchants and cardholders to understand the true implications of this type of fraud.
The current situation and future implications
The recent transition to EMV technology in the US has increased fraud exposure for merchants around the globe. Card-not-present fraud increased 215% in 2015.
While these stats are troubling enough, the situation is only going to worsen. Just 37% of US retailers have made the transition to EMV terminals, leaving plenty of opportunities for criminals in the brick-and-mortar environment. However, as more and more retailers make the transition to EMV technology, the last remaining card-present criminals will move online.
To address the rising threat of ecommerce fraud and ensure consumer safety, European issuers have begun to advertise 0% cardholder liability. This, along with the widespread understanding of the pervasiveness of fraud, has educated consumers about the ease in which they can file chargebacks. The media’s coverage of fraud trends and issuers’ customer service initiates have actually incentivised illegitimate chargebacks.
This is evident by the fact that European ecommerce growth was just 10% in 2015 while chargeback rates increased by 20%.
The significant influx in chargeback requests is overwhelming issuers, who cannot distinguish between illegitimate and legitimate disputes. As a result, merchants experience excessive revenue loss, increased costs, and uncontrollable risk.
A pivotal moment for Europe
Europe is near the top of the leaderboard in friendly fraud losses, meaning merchants now find themselves at a pivotal moment as they approach a fork in the road.
By analysing historical data from the US, we can predict future trends in Europe. As we saw overseas, merchants will continue to be victimised by friendly fraudsters unless they acknowledge the problem and act decisively to protect their profits. Ignoring the realities of friendly fraud will cause European merchants to join the ranks of those suffering needless revenue loss and jeopardising longevity.
Fortunately, there is an alternative. Merchants can take the other path—the path of sustainability and accountable revenue retention.
The founders of Chargebacks911, the US subsidiary of Europe’s Global Risk Technologies, anticipated the threat of friendly fraud and the implications for merchants. The company was created as a proactive approach to risk mitigation and provides the needed solutions to effectively prevent illegitimate chargebacks. Chargtebacks911’s proven track record of success in the US is being replicated in Europe. And as history has shown, effective risk mitigation is possible for those who seek it.
About Monica Eaton-Cardone
Monica Eaton-Cardone is an international entrepreneur who provides sustainable revenue retention and risk reduction solutions to the ecommerce environment. She is the co-founder and COO of Chargebacks911, as well as the CIO of Europe’s Global Risk Technologies.
About Chargebacks911
Chargebacks911 is the world’s leading chargeback management service provider. The company specialises in helping merchants minimise their risk exposure by mitigating friendly fraud to ensure optimum profitability and longevity. Chargebacks911 is a Global Risk Technologies company and works to expand the brand’s global outreach efforts with standardised efficient dispute management solutions developed for both acquirers and issuers alike.
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