Rising Rates of Cyber Shoplifting Causing Innocent E-tailers to Lose Their Bank ApprovalJanuary 22, 2016 No Comments
Featured article by Monica Eaton-Cardone, Co-founder and COO of Chargebacks911
While technology has benefited retailers in many ways, it has also contributed to growing levels of fraud. Although EMV and other developments are helping to curb identity theft fraud and unauthorized transactions, “chargeback fraud” remains a major threat to eCommerce merchants.
As the technology of electronic payment processing becomes nearly ubiquitous in the business world, online shopping is rapidly overtaking in-store sales for many items. But with any fast-evolving system, scammers find loopholes that can eat deeply into profits.
Now that credit cards are being embedded with EMV technology, “card present sales” are more secure from criminal misuse but fraud involving card-not present (CNP) transactions, typically chargeback fraud, is increasing at an alarming rate. Recent studies predict that CNP fraud will nearly double from 2014 to 2018 – rising from $10 billion to $19 billion. It also indicates that remote channel fraud is up to seven times as difficult to prevent as in-person fraud.
Chargeback fraud—also known as “friendly fraud”—is perpetrated by a retailer’s own customers when they file disputes to obtain unjustified refunds for merchandise they ordered and received. Not only does the merchant lose the sale and the merchandise and related shipping and handling costs, they must also pay chargeback fees and may even be dropped by their payment processor if their chargeback levels exceed a specified threshold.
Half of the consumers who are issued a chargeback will file another claim within 60 days, thereby multiplying the cost of each chargeback.
Consequently, many acquiring banks have started moving Internet retailers to their “unapproved merchants” lists to avoid escalating fraud and chargeback costs. It is, of course, very difficult for a merchant to expand and prosper without the backing of a bank, so these trends underscore the importance of effectively managing chargebacks in order to minimize losses and maintain the ability to process credit cards.
According to the 2015 LexisNexis True Cost of Fraud Study, eCommerce merchants without a physical presence are liable for a greater portion of chargebacks, representing 55% of their fraud costs. The study also showed that fraud loss as a percentage of revenue continues to climb; for large eCommerce merchants, that figure was 2.5 times higher in 2015 than in 2013, jumping from 0.53% to 1.39%. Furthermore, the number of successful fraudulent transactions nearly doubled from 2012 to 2015, increasing from 80 to 156 per month.
Fraud and chargeback-related expenses now account for 13% to 20% of merchants’ operational budgets. With more than one-third of that going towards personnel costs to handle chargebacks, the majority of merchants now believe that overhead cost is not justified and seek an outsourced solution to lower their overhead.
Some merchants may balk at chargeback management costs, but ignoring chargebacks can be far more detrimental to their bottom line and their ability to accept credit cards. An experienced risk management partner can help eCommerce merchants to reduce chargebacks, recover more profits and preserve their approved merchant status while avoiding internal staffing and training costs.
What can you do to fight chargeback fraud? It isn’t a question of “should I?” It’s a question of what’s the best and most cost-efficient way. There are no passive solutions. In light of the nature of this fraud, you will need to take a close look at your customer service process and how you document the sale and fulfillment of your products as well as the staff costs to handle chargeback claims. You will also need to assess the percentage of claims you lose and to learn how an effective risk management solution can positively impact earnings.
1. Javelin. The Impact of Fraud and Chargeback Management on Operations; September 2015. info.trustvesta.com/research.
2. LexisNexis. 2015 LexisNexis True Cost of Fraud Study; September 2015. lexisnexis.com/risk/insights/true-cost-fraud.aspx.
3. Cafiero Giusti, Autumn. “As Chargebacks Rise for Merchants, ISOs Respond”; Payments Source; December 3, 2015. paymentssource.com/news/retail-acquiring/as-chargebacks-rise-for-merchants-isos-respond-3022930-1.html.
Chargebacks911 is a division of Global Risk Technologies, and was developed specifically to offer immediate aid to merchants through proprietary technology and provide the necessary function that gives merchants the freedom to focus on their core competency and optimize their in-house skill set. Chargebacks911 focuses on chargeback mitigation and risk management. It specializes in servicing Internet merchants and acquiring banks, offering dispute response solutions and deep analytics. Chargebacks911 works with its clients to help them keep dispute rates down and retain their ability to accept credit cards. For more information, visit www.chargebacks911.com.
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