The sudden hike in ecommerce activity is already leading to a sharp increase in fraud and chargebacks, according to Monica Eaton-Cardone, an entrepreneur and IT executive specialising in risk management and fraud prevention.
The elevated ecommerce activity has come as a result of the government-mandated lockdown, which not only forced people to spend more time inside, but also led to the closure of retail shops.
Eaton-Cardone explained: “In the past few weeks, we’ve tracked an increase in overall chargebacks of about 23%. Some industries are experiencing more chargeback trouble than others. For instance, a dramatic rise in activity for online gaming sites produced an 18.3% increase in disputes since 1st March.
“A similar pattern holds true for digital content which saw a 75% surge in transaction volume from March undercut by a 31% increase in chargebacks.”
Discussing which entity has been hardest-hit, Eaton-Cardone emphasised that no industry has felt the impact as intensely as the travel sector. Between February and April, some airlines saw chargeback issuances increase by 100%. Based on current trends, a carrier who received 50 chargebacks in January might have received 3,700 filings in February, then 4,500 in March and 5,000 by April.
This also doesn’t account for refund claims, which still do not prevent the customer from filing a chargeback with their bank if they haven’t received their refund fast enough. Consumers may, in effect, receive two refunds if the merchant fails to dispute the duplicate claim after refunding the transaction.
More consumers are also finding themselves under financial pressure from the pandemic and are (to a greater extent than usual) committing so-called “friendly fraud”. This is the process of opportunistically using the chargeback mechanism to claim back money they previously spent.
Eaton-Cardone added that she believes there is a definite need for chargebacks as a consumer protection method, especially during a crisis to help consumers recover losses from related issues, such as non-delivery or closed businesses.
However, the recent surge in the illegitimate use of this process indicates a negative shift in consumer behaviour that needs to be stopped. Considering the rate of redundancies, furloughed staff and the impact on an individual’s income, the opportunity to utilise chargebacks to shrink credit card bills or increase bank balance has not gone unnoticed.
To make matters worse, merchants overstretched by order volume, short-staffing, and supply chain fulfilment problems are neglecting to dispute chargebacks, which is the most effective way to stop repeat friendly fraud behaviour.
As a result, they are allowing the sales revenue, costs, fees and associated fines to be siphoned out of their bank accounts. Many businesses have virtually shut down, or are on an indefinite pause until this pandemic ends, they’re not contemplating the influx of unforeseen costs and damages that would strike from sales transacted up to 90 days before the COVID-19 crisis even began.
Eaton-Cardone underlined that this is not a sustainable strategy given the severity of the current economic situation and the impossibility of predicting both its duration and the terms of its resolution. Ecommerce merchants are stretched to the limit and need to focus on protecting their own businesses.
The best option in dealing with chargebacks in this situation, she suggests, would be for these merchants to seek assistance from a company specialised in handling disputes, where industry experts are able to clarify and mitigate every disputed charge.