Simply put, first-party misuse is a more accurate description of what’s actually occurring. It allows for a more suitable classification and helps merchants reduce their risk of penalties and fines from the card networks in the event they exceed their fraud chargeback thresholds. If a genuine customer knowingly disputes a valid purchase and claims it as fraudulent, it doesn’t make sense for the merchant to be held responsible both for the lost value of the item sold and any penalty as a result of an increased number of fraud-related disputes.
Recontextualising FPM as intentional misuse, as opposed to fraud, helps clarify what’s occurring and that transparency is better for everyone in the long term.
Probably the biggest and most exciting change is the higher level of active engagement on the part of the card networks.
At the MRC, one of our roles as the Voice of the Merchant is engaging with the card networks on behalf of our merchant members and informing them of the concerns of our mutual customers, the merchants. The issue of FPM wasn’t really on the card networks’ radar until the MRC’s Merchant-Issuer Executive Committee made it one of the top three areas of focus, backed by the issuers and merchants that make up our membership.
Once these problems were raised and elaborated on with data from the 2022 Global Payments and Fraud Report, major global card issuers like Visa and Mastercard responded relatively quickly. Visa was the first to take a big step in adopting the MRC definition of FPM, and integrating that into a new scheme rule, providing opportunities for merchants to reexamine and represent these disputes. They worked closely with the MRC to develop new processes for merchants to address FPM and for reclassifying the related disputed transactions as misuse instead of inaccurately categorising them as fraud.
Visa’s new rule on the provision of Compelling Evidence (3.0) will become effective in April 2023. From then on, merchants will be able to represent these chargebacks and potentially prove the customers in question are misusing the system by reporting fraud when fraud has not occurred.
One of the most common reasons for customers to dispute transactions in this way is when they don’t recognise a transaction narrative on their bank or payment card statement. Instead of contacting the merchant directly to clarify, they rather contact their card issuer and file a dispute, thereby initiating a costly chargeback with the assumption of fraud.
As a merchant, ensuring your brand name appears as clearly as possible on a customer's statement can go a long way toward correcting the issue. A customer is much more likely to recognise a transaction if they see a merchant’s name clearly displayed, and even if they don’t, they’re more likely to contact the merchant directly with questions.
I believe it will become less prevalent as more cardholders learn that engaging in this type of behaviour is wrong and incurs costs that affect the entire ecommerce ecosystem. Claiming a fraud when you know a transaction is genuine is a crime.
Outside of the regular customers doing this, there are Organised Crime Gangs (OCGs) who also avail themselves of the loopholes and weaknesses in the system that facilitate this kind of behavior. Closing the loophole and making it easier for card issuers to avoid fraud-related chargebacks will help cut down on this OCG activity.
Merchants need to talk to each other. Talking to other organisations, not just in your vertical or market, but across ecommerce is profoundly important. It’s something we really encourage with our global communities, and we work hard to cultivate an environment where payments and fraud prevention professionals can responsibly share ideas and compare notes. Together, we really can make a difference when it comes to first-party misuse. You only have to look at the remarkable progress made over the last year to see the truth in that.
This editorial is part of The Paypers' Fraud Prevention in Ecommerce Report 2022-2023, the ultimate source of knowledge that delves into the world of fraud prevention, revealing the most effective security methods for companies to stay one step away from bad actors and secure their businesses.
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