After an extremely challenging period for merchants when it comes to fighting against fraud, we spoke to Monica Eaton-Cardone, Chargebacks911 Founder, as she emphasised the importance of flexibility and utilising data.   

Payment Expert: The trend of fraud within chargebacks hasn’t wilted off the back of the pandemic, how worrying is this for consumers?

Monica Eaton-Cardone: This year has been incredibly tough and turbulent for merchants and consumers alike with everyone experiencing a slow and gradual return to normality from the previous three years. However, we’ve all had to contend with the global supply chain crisis, which restricted production and the shipping companies who take their finished goods across the world similarly slowed down their operations in anticipation of much less demand. Now we’re in the middle of a cost-of-living crisis that is likely to get worse throughout the rest of the year with many consumers potentially not looking to spend as they did previously.

For consumers, they are mainly concerned with getting their money back in instances of legitimate chargebacks. However, there are many instances of them abusing the system intentionally or accidentally. This leaves merchants and acquirers facing liability for fraudulent chargebacks, or “first party fraud,” losing money due to false positives, and losing loyal customers in the process – which in turn, trickles down to negatively impact the consumer and their issuing bank.

In fact, our latest Chargeback Field Report results showed that first party fraud (commonly called “friendly fraud”) is on the rise – approximately two-thirds of merchants reported a rise in this behaviour over the past 3 years, with the average increase being 28%. This represents a startling increase in friendly fraud levels, particularly post-COVID.

The core problem with disputes and chargebacks is the high operational cost of processing these cases and the scaling constraints that accompany its continued growth rate. To achieve a sustainable model and protect the customer experience of both the buyer (consumer) and the seller (merchant), banks and merchants alike, require better technology, more data intelligence, and agile platforms. This is what we do and where we help.

With advancing technology, both buyers and sellers need to be more vigilant. For merchants, this means ensuring they have access to the data they need to make good decisions, coupled with the discipline to extract insights and commit to continuous improvement  For consumers, e-commerce purchases follow a new trifecta – faster, better and more transparent. 

The current economy has elevated competition, buyers should expect more promotions, upsells, tighter return policies and changes in advertising enticements. Understanding the underlying terms of a specific promotion, return policies, and recurring subscriptions; are more relevant than ever and will go far to reduce post transaction issues that result in chargebacks.

PE: What steps do you believe firms can take to mitigate the risk of chargeback fraud?

MEC: The strategies a firm might use to engage in chargeback fraud prevention are different from those used to fight account takeover or synthetic fraud. For instance, one tactic that can help fight criminal fraud is to deploy a layered approach, such as fraud tools, manual screening and A/B Testing strategies. Utilising this type of strategy is most effective when chargeback data can be fed into the decision matrix, as real-time as possible.

Because Chargeback Fraud happens post-transaction, businesses won’t even know it’s fraud until after the fact. Whilst it’s possible to tighten fraud filter parameters, false declines can cost companies far more than they will save. Therefore, chargeback fraud prevention requires a much more involved approach. It touches on customer service, data organisation, and fraud mitigation technology.  As a rule of thumb, merchants should ensure every chargeback is thoroughly investigated and decisioned within 72 hours of receipt.

PE: Why is data so key when it comes to halting the rise of fraud within the payment sector?

MEC: Data analysis is an essential part of fraud management. With data, you’re able to make educated and informed decisions. But without it, it could lead to guesswork and potentially more lost revenue for merchants. 

One of the key areas analytics impact fraud rates, is the assessment of chargeback data. Without the right data and correct interpretation of this data, merchants may inadvertently block good customers or fail to stop repeat criminals.

PE: How crucial is it that data is utilised in the most efficient way and the importance for firms to have best practices in place to prevent this? 

MEC: This is vital and cannot be underscored enough when it comes to chargeback and dispute related data. For example, chargeback reason codes are an unreliable indicator for ascertaining the actual origination. And in order to understand what you need to change to solve a problem, you must first understand what the problem is – specifically; identifying the root cause, or source of the problem. 

This can be a complicated process and is one of the reasons our proprietary Intelligent Source Detection (ISD) technology has become so widely used. An effective strategy requires a combination of efforts that leverages innovative technology, robust data analysis, and ideally machine learning models to delve into dispute data and identify chargebacks by their source. Once the issue is identified, taking necessary action is paramount – and too often a delayed step!

We utilise payment data, enriched industry data, and big data, subjecting that information to our AI applications. We can then use the feedback to address practices that may inadvertently cause disputes, while also preventing disputes in certain cases. No other service provider can reduce chargebacks and assist with loss prevention and recovery on the same level. 

This is because we have access to essential data, rich data, expert insight, and the tools necessary to analyse it. Maintaining domain expertise in this area is also crucial, as rules related to chargebacks and disputes can change often and differ by card, region, merchant and issuer type.

This vastly differs from most software packages available today, which don’t address the source, or cause of chargebacks. As a result, businesses continue to experience losses associated with chargebacks and friendly fraud. With our ISD technology, we ensure this isn’t the case.

PE: When it comes to combating fraud, how vital is it that merchants are flexible and quick to adapt?

MEC: Merchants must be aware of the problem and willing to adapt. But they must also be mindful that they cannot do it all on their own.

To prevent chargeback fraud, merchants really need a two-fold strategy: prevent chargebacks whenever possible and contest invalid claims whenever appropriate most effectively. That can be much harder than it sounds. 

Successful chargeback fraud prevention can be a complicated, time-consuming, and resource-heavy endeavour. In-house strategies may be capable of addressing easy-to-manage issues but the problem is usually bigger than that. This is where outside expertise is vital in helping them create a comprehensive and customised strategy that works for their business.

PE: Lastly, can you tell us more about the role Chargebacks911 plays in helping firms mitigate the threat of fraud?

MEC: As a business, Chargebacks911 has worked to mitigate chargeback risk and eliminate fraud for more than a decade. In fact, we were the very first global company dedicated to tackling the problem of chargebacks, which represents $200 billion+ annual liability to the market.

We have a laser focus on this goal that has allowed us to develop the most effective strategies for minimising the impact of chargebacks, helping businesses streamline processes, and optimise data insights to reduce loss.