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Voice of the Industry

Webinar Takeaway: Mastering chargeback & fraud prevention in EMEA for 2025: AI-driven solutions for post-holiday challenges

Thursday 5 December 2024 09:47 CET | Editor: Bethiah Negussie | Voice of the industry

Shawn Colpitts from Spec, Corin Dennison from Insight Retail Risk Consultants, and Sivan Herman from Riskified shared valuable insights to help businesses stay ahead of fraud and chargeback threats in 2025.

The MRC 2024 Global Ecommerce Payments & Fraud Report revealed that merchants identify refund/policy abuse and first-party misuse as the leading threats, surpassing phishing. This is now the third most significant issue in North America and Europe. Businesses suffer significant revenue losses due to fraud and abuse in returns, refunds, and exchanges. Chargeback volume is projected to hit USD 165 billion in 2024, while the global cost of returns, refunds, and exchanges is estimated to be USD 394 billion. From fraudulent claims of non-delivery to returning worn or damaged items, reselling products for profit, and exploiting promotional codes, the size and volume of these activities is alarming. Read Riskified’s global insights & policy playbook 2024 to get more insights on returns, refunds, and exchanges data.

During a recent webinar on mastering chargeback and fraud prevention, industry experts Shawn Colpitts, Senior Manager Fraud Strategy at Spec, Corin Dennison, Managing Partner at Insight Retail Risk Consultants, and Sivan Herman Director Account Management at Riskified shared valuable insights to help businesses stay ahead of these threats in 2025. The webinar highlighted the growing complexity, the tools available to manage it, and the best practices that can help ecommerce merchants protect both their bottom line and their customers.

A continuous growing threat

One major problem merchants face is the growing prevalence of return fraud and policy abuse, where customers take advantage of lenient return policies to commit abuse. Additionally, chargebacks, where a customer disputes a legitimate charge with their bank or payment provider, continue to be a headache for merchants. According to experts, ecommerce retailers experience shrinkage at significantly higher rates than in physical retail. Shrinkage is the percentage of loss a retailer experiences relative to the cost of sales. For brick-and-mortar stores, this is usually around 0.75% to 1.5%, including things like theft and waste. However, for ecommerce businesses, shrinkage is much higher, typically between 5% and 8%, driven by problems like fraud, chargebacks, and delivery issues. This disparity highlights the pressing need for robust fraud prevention strategies.

Fraudulent behaviour is growing, fuelled by accessible information and techniques shared among bad actors. If there are not adequate measures taken, businesses risk not only financial loss but also alienating and costing their legitimate customers.

breakdown of the global cost of returns, refunds, and exchanges is estimated to be USD 394 billion.

 

Leveraging AI and ML for real-time fraud detection

To combat the challenges, experts discussed the role of AI and machine learning in fraud prevention strategies. The main benefit of AI-driven solutions lies in its ability to detect fraudulent activities in real-time. These systems can assess user behaviour, transactions, and patterns at a granular level, allowing merchants to identify potential fraud.

Another key solution is the use of ML models to predict and prevent return and refund abuse. To combat fraud effectively, merchants can deploy proactive, AI-driven solutions and leverage advanced data analysis techniques. By assigning risk scores based on defined criteria, ML models enable merchants to detect suspicious activities at the earliest stages.

Another vital approach is looking at behavioural analytics, which helps merchants identify abnormal patterns, such as inconsistent session behaviour or mismatched account details. By focusing on actionable data merchants can cut through the noise of other unreliable data.

Best practices and key takeaways for managing returns and policy abuse

To address the growing problem of return fraud and policy abuse, the experts shared several best practices for merchants:

  • Know your losses: a crucial step in combating fraud is understanding where the losses are coming from. Whether it's shrinkage, chargebacks, or return claims, merchants need to track their losses and analyse the data. By categorising different types of fraud, merchants can identify patterns and develop targeted strategies to address specific issues. It is important to understand the data to determine which customers are bad for business.

  • Data sharing: by pooling data, merchants could better identify patterns of fraudulent behaviour that might not be visible to a single business alone. This collaboration could uncover trends, such as repeat offenders across multiple platforms, and create stronger, collective defences against fraud. This is a key strategy for understanding the broader landscape of fraudulent activities and adapting to threats.

  • Make a distinction between opportunists (80%) and prolific (20%) within the bad actor group. If policies are too lax, the dynamics can reverse to 20% opportunist and 80% prolific. Civil action can be a highly effective deterrent against opportunists. By taking decisive actions, such as enforcing legal consequences or implementing stricter policies, merchants can discourage these opportunists from exploiting their systems.

  • Use insights from data: merchants should focus on granular and valuable data points like device details, payment methods, and user behaviour patterns. This approach will enable businesses to identify fraudulent activity before it results in significant losses.

  • Implement solutions to mitigate this growing problem: ML and AI solutions can help businesses detect fraud in real-time by analysing vast amounts of data and identifying high-risk patterns.

As the experts discussed, the fight against return and policy abuse is a continuous journey, not a one-time fix. Understanding the size and scope of the problem is the first step, followed by implementing data-driven systems that leverage AI and ML.

How can you get your company’s leadership to recognise and prioritise this issue as a significant problem?

It is important to determine the size of the prize versus the price. Organisations must analyse their total loss due to shrinkage relative to their cost of sale. These figures can amount to millions and can quickly outweigh an organisations net profit if not addressed. Assessment of this financial metric must be transparent and supported by accurate data. The impact becomes even more striking to leadership when confronted with evidence from online fraud forums, where their brand might be shown among the top choices for fraudulent returns.

Want to dive deeper into this topic? Then, click here to watch the full exclusive webinar with Riskified.

About Bethiah Negussie

Bethiah NegussieBethiah Negussie is an Editor and Marketing support at The Paypers. With a background in media and communications, Bethiah is passionate about everything related to writing, copywriting, social media, and overall marketing campaigns. She is particularly interested in observing and learning about trends in the fintech, payments, and fraud prevention industry. You can reach out to Bethiah at bethiah@thepaypers.com.


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Keywords: policy abuse, fraud prevention, chargebacks, holiday fraud, ecommerce, refund fraud, artificial intelligence, machine learning, fraud management, fraud detection
Categories: Fraud & Financial Crime
Companies: Insights Retail Risk Consultants, Riskified, Spec
Countries: Africa, Europe, Middle East
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