We’ve been through a whirlwind of ups and downs over the last eighteen months. Even as we begin to return to a sense of normalcy, we’re still not entirely in the clear.
Throughout the pandemic, merchants had to adapt to a new way of doing business. Many were forced to embrace new payment methods, including card-not-present options like eCommerce and click-and-collect. This change to consumer habits may prove to be a longer-term trend, though.
Digital shopping options are undeniably more convenient and easier to use. Buyers love having the option to shop from the convenience of their home. That said, we must consider that increased online activity brings more opportunities for fraudsters to abuse the system. According to the recently released 2021 Chargeback Field Report, for instance, we see that there has been a surge in fraudulent activity directly related to the pandemic.
This report shows us that merchants have opportunities to benefit from increased online activity. However, they must also ensure that they take necessary precautions to deal with increased chargeback risk.
Chargebacks Must Be Addressed
Merchants are still dealing with the negative ramifications of Covid-19. It’s no surprise that 54% have a pessimistic outlook for 2021, according to the Field Report. The survey also found that nine out of ten merchants considered friendly fraud to be a leading concern for their business. But, at the same time, fewer than one-third feel they are currently addressing the problem successfully.
Another factor we must consider is representment, which is the process of “re-presenting” a transaction to the issuing bank following a chargeback. The ability to successfully participate in representment plays a huge role in the fight against chargebacks.
Merchants are currently submitting representments in 43% of chargeback cases, but their success rates are low. According to the report, the average merchant’s net recover rate, or the rate at which merchants successfully re-present a chargeback, is just 12%.
We need to ensure that merchants are equipped with the right information and tools to win chargeback cases. Simply put, this isn’t a problem we can afford to ignore. Merchants experiencing the pressure of increased sales and high demand need to optimize their practices to reduce costs and avoid chargebacks.
Ongoing Chargeback Challenges
When it comes to fraud and chargebacks, I believe one of the biggest factors working against merchants is a lack of data insight.
All chargebacks are assigned a reason code to explain why the cardholder disputed the charge. These can be misleading and hardly scratch the surface of the real issue, though. Internal data from Chargebacks911 finds that, by 2023, 61% of all chargebacks filed will be due to friendly fraud. This underscores why merchants can’t rely solely on reason codes.
The problem is that most individual merchants don’t have the time or resources to examine every transaction and expose friendly fraud attacks. They also lack access to industry data that could reveal broader trends in fraud and consumer behavior.
What’s the Solution?
I think that greater collaboration between all levels of the payments process could be the answer. Merchants, banks, processors, card schemes, and vendors each have unique insights to bring to the table. By coming together and adopting a more collaborative approach to sharing data, merchants could have a better opportunity to fight fraud and chargebacks more effectively.
Chargeback alerts, for instance, are a great tool which merchants should consider utilizing. They notify merchants of pending disputes, allowing them the chance to refund buyers before a chargeback can be filed. They don’t address the core issues that cause chargebacks; however, they can help mitigate short-term risk.
When considering long-term chargeback prevention, merchants will need to employ a variety of fraud detection tools, including:
- Address Verification Service (AVS)
- 3-D Secure 2.0 technology
- Velocity limits
- Geolocation
- Fraud blacklists
Only a comprehensive and multilayer strategy can effectively tackle the chargeback problem.
The last year and a half has uncovered many threats in the fraud space. However, there are also plenty of opportunities for merchants to grow and expand their business. They only need to know where to look.
