Drawing the Line Between Legitimate Fraud and Friendly Fraud

Fraud is evolving faster, maybe as quick as e-commerce is- when companies get savvy, fraudsters look for other loopholes.

Regrettably, it is getting costlier and more prevalent every year.  Juniper Research, a market analyst, predicted that retailers would lose $130 billion in the coming five years because of card-not-present fraud. But that’s not the only way criminals can attack you- they use a web of interconnected loopholes to exploit you.

The global expansion of e-commerce: Every market has risk, so as e-commerce grows, tricksters will keep looking for more ways to breach you.

Conflicting security policies and practices: Contradicting and weak industry rules and regulations. Site owners are not also compliant, which gives a gap for online criminals.

EMV liability: In-stores are becoming more impenetrable; perpetrators are turning online fraud as an easy way to get money.

Brand-new tech: It is challenging to keep updating security policies with the speed at which tech is improving.

For merchants, safeguarding oneself in the digital market should be priority number one. Failure to do so may lead to irreparable damage.

For instance, though chargebacks exist as legal recourse to help buyers/consumers recover their money in case of fraud, they are doing more harm than good to retailers. And because you also to want to protect your customers but not at the expense of your business, it helps to know how to draw the line between legitimate fraud and friendly fraud

Legit Reasons For a Customer to File a Chargeback

If a trickster completes a transaction with stolen cardholder details, the card-holding customer has a right to petition a chargeback.

Account takeover, on the other hand, is when occurs, a scammer uses partial or full user info to take control of a user’s account. Hackers do this by phishing websites or use other data-stealing techniques.

In fast fraud, the cybercriminal gets hands on cardholder payment info and tries to complete multiple transactions as soon as they can before someone raises a red flag.

All the above techniques are unique and require security measures to discover and prevent them. To start with should conduct fraud scoring. It involves monitoring different metrics to see the possibility that a transaction is deceitful. You can make a decision based on fraud indicators like:

  • Device fingerprinting
  • AVS (address verification service)
  • Geolocation
  • Proxy piercing  
  • Velocity checking
  • Biometrics (for smartphone apps like Apple Pay or Samsung Pay)
  • Friendly (Fraudulent) Chargebacks

Though chargebacks are a great way to protect your shoppers, but most of them these days are the result of criminal fraud. In fact, friendly fraud is a growing e-commerce threat. It happens when a customer petitions a chargeback without tangible proof.

Most chargebacks are triggered by;

Shopper expectation: Today’s online market assures consumers of instant gratification. Anything less will lead to a chargeback request.

Ignorance or lack of knowledge: Most customers don’t know the niceties of the process- for many, a return and chargeback are the same things.

Online shoplifting: best known as chargeback fraud, this occurs when a shopper completes a purchase to file a chargeback later so they can get a product and not pay for it.

Consumer’s self-reproach: A customer decides they no longer want a service or good and rush to the bank instead of requesting a return from the seller or service provider.

The bottom line

According to figures from Chargebacks911’s research, 60 -80 percent of chargebacks are due to friendly fraud. These numbers are threatening given that chargebacks incurred businesses $31 billion in losses via revenue, products, and fees in 2017.

Merchants must now take seriously any chargeback and employ the best practices when trading online.  The challenge is to serve customers without compromising your bottom line.

Author Bio: Electronic payments expert Blair Thomas is the co-founder of high risk payment processing company eMerchantBroker. He’s just as passionate about high risk merchant account as he is with traveling and spending time with his dog Cooper.

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