Monica Eaton-Cardone, Global Risk Technologies: "Chargebacks, friendly fraud and their impact on merchants"

In general, what percentage of chargebacks prove to be friendly fraud and what does it cost to the ecommerce community?

To look at the cost of friendly fraud you first have to look at the cost of chargebacks. In 2012, LexisNexis reported that for every USD 100 in chargebacks filed, the average merchant pays USD 270 in related costs. The costs of chargebacks are increasing and in 2014, this figure increased from USD 270 to USD 316. The cost of friendly fraud is even higher.

The majority of consumers who file a friendly fraud chargeback do not get caught. This is why statistically 40% will file another chargeback in 90 days or less. This means that the cost of a friendly fraud chargeback is exponentially higher in the long-term. When it comes to the percentage of chargebacks that can be classified as friendly fraud, I can state that typically about 5-10% of chargebacks are made up of intentional fraud – leaving the rest to question

There are three real sources for chargebacks: one is via real criminal intent (such as a data breach or a stolen card), another happens when the merchant makes a mistake, and the final source is an accidental chargeback that should have not been filed in the first place. In the case of the latter, usually either the consumer made a mistake or the bank made a mistake. Most often this occurs because the bank did not have the time or resources available to conduct proper due diligence. They may also have assumed the validity of the claim rather than investigating and potentially challenging it.

Statistically, for every 100 chargebacks, 26 might be fraudulent in some way (such as identity theft or a credit card breach), according to The Nilson Report. The interesting question is, how much of this fraud is actually instigated by the consumer contacting the bank and notifying them of the fraud? Typically this figure is only about 20%.

What can banks and merchants do to reduce the chargeback volumes, to ultimately prevent them from happening?

We have to get back to the mentality of human involvement and hands on diligence. Chargebacks are a subjective, human process between the consumer and the bank employee. What hurts banks is not taking a human approach and failing to recognize that they are making a decision that can breed unintended consequences. For example, filing a chargeback without proper due diligence in an effort to provide good customer service may end up creating a much worse situation if the merchant disputes a wrongfully filed chargeback, leaving the customer upset and with no option for a refund.

Issuers can help reduce negative impacts of chargebacks by verifying the claim first, such as contacting the merchant on the customer’s behalf or informing the cardholder of the potential negative consequences in the event their claim is found to be illegitimate. If you teach that customer a lesson without harming the relationship with them, you avoid a short-term issue and more importantly, encourage long-term reform.

What can merchants do to help educate the customers in the right direction?

First and foremost, merchants need to practice preventative defense measures, while also establishing a proactive offense to help combat the issue at its source. When it comes to fighting friendly fraud, merchants need to do everything they can to validate the transaction, as well as the receipt of service or merchandise delivery. Ideally, this means getting signed delivery receipts and making sure that the customer has agreed and understood the terms and conditions.

Staying in communication with the customer is also wise and a practice that is quickly becoming a forgotten ingredient in revenue retention. It is easy to forget this point because there is no face-to-face interaction online, but the fact remains that customers are not just a number or a transaction. Genuine communication is extremely valuable and effective in helping reduce the impact of chargebacks.

When surveyed, the number one reason revealed by cardholders for why friendly fraud chargebacks occur is that “they didn’t have time to contact the merchant”. This tells us that friendly fraud is not always born out of malicious intent to get something for nothing – the fact of the matter is that calling the bank may have just been “faster” than dealing with the merchant.

Merchants need to recognize this trend and understand that if they sell online, it is no longer sufficient to be offer customer service from 9am to 5pm – they are in a 24/7 business world and need to offer these support hours as well.

Finally, merchants who continue to evolve with best practices will do best. We advise all of our clients that instead of focusing on chargeback statistics, they should focus on developing more quality control metrics: from customer acquisition methods and product quality, to shipping service and caller waiting times – these are the details that can help make a tangible difference.

Sometimes it’s hard to find a customer support telephone number. Does that interfere for cross-border shoppers and global companies?

Definitely. It often gets to the point where a telephone number is not even helpful. For example, if your phone line is in Belgium, and you have UK customers, they don’t want to make that long-distance call. One option many companies use to publishing their URL as their descriptor and allow multiple contact methods and options via their website.

You have recently been appointed to drive the European expansion of Global Risk Technologies. What kind of services are you going to roll out in Europe?

Given the current landscape of payment processing in Europe, we recognize a significant opportunity to help standardize the technology and processes around chargebacks. There is no reason why Europe should have to learn from trial and error protocol when it has an opportunity to create a better foundation modeled on successful applications piloted and proven in the US market.

We focus on improving the way in which chargebacks are handled, specifically in post-chargeback activities. This is an area where we can provide great intelligence and help resolve a growing concern. Ultimately our goal is to help decrease overall chargeback liabilities and eliminate unnecessary friction that consumers, banks and merchants are experiencing. The result is greater sustainability and further encouragement for card-not-present economic growth.

With our experience in Europe thus far (our CEO spent 10 years in London), we know the key components that will help bring significant and positive results to both online merchants and their acquiring banks. We understand each side of the chargeback equation on an intimate level and intend to bring proven solutions that will be rolled out geographically throughout Europe.

Having a physical presence in Europe and taking all the experience gained from our success in the US and with European clients thus far has been instrumental in our growth. So has our collaborative approach to developing a deeper and more intuitive solution to solve a growing problem. There is an opportunity for us to help solve future issues in a way that creates a win-win scenario for every member of the transaction chain.

About Monica Eaton-Cardone

Monica Eaton-Cardone is the CIO and co-founder of Global Risk Technologies. She is an entrepreneur and business leader with vast expertise in technology, ecommerce, risk relativity and payment-processing. She is a passionate educator on the problem of ‘friendly fraud’, not just in raising awareness but explaining practical steps that the industry needs to follow to reduce this crippling issue.

 About Global Risk Techonogies

Headquartered in Dublin, Ireland, Global Risk Technologies provides a highly scalable enterprise solution for chargeback fraud recovery, loss prevention, and merchant sustainability services to European acquirers, card issuers and local merchants.