‘Go to checkout’. For most businesses, it’s the critical part of the transaction, the point where all the hard work that’s gone before pays off. At least, that’s the theory. The checkout point is where most businesses try their hardest to detect fraud, and this is the source of a whole raft of problems.
There are a number of ways in which chargeback fraud manifests itself. One of the most common is first-party ‘friendly fraud’, a term that’s a polar opposite of the reality. A typical example is a customer receiving goods and then claiming that they didn’t arrive or initiating a chargeback for late-running orders that then subsequently turn up. In a similar manner, they may say that an online service that they paid for, such as a movie rental, was not authorised by them.
Chargebacks may also occur as a part of third-party fraud. Bad actors will often use legitimate users’ accounts or details to make fraudulent transaction. Whatever form the fraud takes, the result is usually the same for the merchant. The vast majority of chargebacks will be successful, leaving the merchant out of pocket. But that isn’t the only problem that chargeback fraud causes.
Aside from the immediate financial impact for the business – which can be significant – chargebacks can come with a steeper downstream price. Because each chargeback carries a cost to defend, it also results in administrative overheads for all concerned. Issuers will take a negative view of an organisation that is associated with too many chargebacks, and their authorisation systems will start declining more transactions from merchants who show high chargeback rates.
And of course, it’s not the only form of fraud that organisations have to contend with. Account takeover fraud (ATO) is still rife, and bad actors are still constantly evolving new tools and techniques to defraud and scam their victims. Remote Access Tools and Trojans (RATs) are increasingly making the shift to mobile devices – the primary platforms that people use for banking and shopping.
Businesses are well aware of the dangers, and most are taking steps to combat the rising tide of fraud. But frequently, those steps are taken on shaky ground. Legitimate customers will often find themselves forced to go through extra authentication and validation steps in order to process a routine transaction, or even find their purchase being declined.
A contributing factor here is an over-reliance on transaction risk analysis (TRA), an approach well known for its tendency to throw up false positives. For customers used to smooth user journeys, even the slightest bit of friction can lead to abandoning the transaction. Just how serious that is can’t be underestimated – cart abandonment went as high as 88% in a single month.
This potentially puts organisations in the untenable position of pleasing exactly the wrong people. In this situation, the fraudsters are the winners; and the genuine customers – along with the businesses – are losing out.
It’s clear that this situation is not sustainable, particularly when there are new rules and legislative changes on the horizon. Regulators are constantly rewriting the rulebook, giving consumers increasing levels of protection. That protection will come at the expense of businesses who are only checking for fraud at the point of checkout.
For those organisations, the best they can hope for in the case of a fraudulent chargeback is the decision going in their favour 50% of the time. That means that every transaction essentially not only becomes a gamble, but a gamble on short odds.
It also highlights the false economy of opting to remain with systems that only check for fraud at checkout: they are neither effective nor cost-effective. When businesses weigh up the negative impact of not only chargebacks and false positives, but the administrative overheads needed to deal with the fallout, the associated costs swiftly mount up.
In fact, by forcing businesses to revert back to manual processes to deal with each and every instance, it also puts an organisation in the precarious position of relying on what are effectively analogue technologies and processes in a digital world.
This is emphatically a good thing – by putting their houses in order in this manner, businesses can take advantage of fewer overheads, fewer errors, and more confidence in their transactions. It also lowers the chance of being viewed negatively by issuers – a form of reputational damage that’s hard to quantify and rectify.
It’s why many businesses are adopting Callsign’s solution, which uniquely considers both best-in-class security and user experience. With a passive identification approach that engages from the outset, Callsign keeps both businesses and their customers secure at every stage of the transaction, right through to checkout – without impacting or compromising privacy or user experience.
Callsign gives merchants the tools that enable them to ascertain the right customer, every time. By removing the costly issue of false positives, Callsign lets businesses recognise and block transactions from bad actors, leading to fewer chargebacks and thus keeping organisations in good stead with issuers.
Relying on only checking for fraud at checkout is a huge gamble for organisations – and by the time it gets to chargebacks, it’s all too late to act. Fortunately, it’s not too late for businesses to adopt a solution such as Callsign that benefits everybody except the fraudsters.
Ali Chamseddine is the Head of Payments Strategy at Callsign. A highly skilled product leader, Ali has extensive experience of working with diverse and complex strategic goals and clients’ needs. He is an expert in the fields of payments fraud, identity, and authentication.
About Callsign
Callsign makes digital life smoother and safer by helping organisations establish and preserve digital trust so people can get on with their digital lives. The first true representation of identity online, Callsign positively identifies users by their unique characteristics, replicating real-life recognition signals with AI models. The only solution to identify people across every journey, channel, and brand, Callsign makes digital identification seamless and secure, helping drive business growth.
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