What Will the Future Hold for Chargebacks in Digital Payments?

The chargeback process was introduced more than four decades ago as a consumer-protection mechanism. It was meant to inspire consumer confidence in payment cards, which were still a novel concept at the time. Fast-forward to today, though, and these forced payment reversals have evolved into a significant problem for online merchants.

Chargeback abuse—commonly known as friendly fraud—is a major source of loss. In fact, chargeback issuances resulting from friendly fraud were expected to reach $50 billion annually in 2020, according to Mercator Advisory Group.

Even then, this figure is a low estimate. It doesn’t account for current trends in a post-Covid environment, where we’ve seen a dramatic increase in friendly fraud. These attacks were already up by the end of March, and there’s no sign that they’re going to slow down.

Covid-19 might look like the source of the problem on a superficial level. If we dig deeper, though, we see four underlying factors behind the preexisting upward trend in chargeback filings:

• More fraudsters view the CNP environment as the “channel of least resistance;”
• Inconsistency in technologies and regulations across different markets;
• The rise of mobile banking;
• The response by card networks like Visa and Mastercard.

These four factors carry diverse ramifications for the market. For instance, roughly $118 billion in e-commerce transactions are declined each year, according to Javelin Strategy & Research. Most of these rejected purchases are false positives, meaning the merchant unnecessarily rejected the purchase in hopes of avoiding a chargeback.

Clearly, there’s a growing disconnect between merchants, financial institutions, and card networks regarding how best to address this situation. We can see this reflected in the fact that the rate of chargeback issuances in North America is expected to significantly outpace those in the European market. This is attributed to factors like strong customer authentication protocols required by the Revised Payment Services Directive (PSD2), and more widespread use of 3-D Secure technology.

The pressure is on for industry players to find more comprehensive solutions for chargebacks. These solutions must be data-driven and adaptable, though. Otherwise, the growing disconnect between cardholders, merchants, financial institutions, and card networks will exacerbate existing problems in the market, leading to further losses.

The good news is that, in the meantime, there are strategies merchants can employ to address these concerns. For instance, even though friendly fraud operates by concealing itself behind false chargeback reason codes, it’s still helpful to have a clear understanding of what each reason code means in context.

Merchants can’t avoid friendly fraud in the same way they can detect criminal attacks or eliminate merchant errors. However, they can minimize friendly fraud risk by adopting key best practices, including:

• Notifying customers to remind them about recurring payments;
• Keeping organized and well-documented transaction records;
• Using delivery confirmation when shipping physical goods;
• Providing easy access to round-the-clock, live customer service;
• Providing a quick response to any refund or cancellation requests.

Also, if a merchant identifies a chargeback as friendly fraud, it’s important to engage that dispute through the representment process. This is a complex, time-consuming process, which is why many merchants opt to outsource their chargeback management. It’s still possible to conduct the process with in-house management. However, it will require strong evidence to support the merchant’s case, such as:

• A legible sales receipt
• A tracking number
• Any emails or transcripts of communications you’ve had with the customer
• Delivery confirmation information
• A record of in-store pickup
• Photographic evidence (when available)

This evidence needs to be contextualized with a chargeback rebuttal letter, explaining why the original transaction was valid. Also, merchants are on a tight schedule. In most cases, they have only a few days to provide a response to their acquirer.

Chargeback management can be a difficult and confusing process. But, with the problem of chargeback abuse only set to grow over time, it’s something merchants can’t afford to take for granted.

—Monica Eaton Cardone is the chief operating office and cofounder of Chargebacks911, Clearwater, Fla.

COMMENTARY: What Will the Future Hold for Chargebacks in Digital Payments?

Monica Eaton-Cardone September 11, 2020 Competitive Strategies, E-Commerce, Fraud & Security, Issuing/Originating, Mobile Commerce, Point-of-sale, Transaction Processing

Posted in Best Practices for Merchants, Credit card Processing, Credit Card Security, e-commerce & m-commerce, Electronic Payments, Internet Payment Gateway, Uncategorized, Visa MasterCard American Express Tagged with: chargeback, chargebacks, ecommerce, ecommerce merchant, ecommerce merchants, ecommerce sites, electronic payment, electronic transactions, fraud protection, mobile payment security, strategies, transaction security

5 tips for Ecommerce owners and managers who seek improved productivity in their business.

De-clutter

A messy workplace is annoying, distracting, and can get out of hand. Keep clutter at bay by regularly tidying up.

Clutter can also exist inside the mind. Having piles of paper on your desk can keep you from finding a pen, having too many thoughts can curb your focus.

Fix this by de-cluttering your mind. Use a mind-mapping tool to organize all the ideas, tasks, or worries in your head.

Eat your Frog Early

When you arrive in the office every morning, do you dive right into your biggest task or do you get the minor stuff out of the way first? Author and personal development coach Brian Tracy says that the former is more effective in terms of productivity.

In his book Eat That Frog!: 21 Great Ways to Stop Procrastinating and Get More Done in Less Time, Tracy cited a famous Mark Twain quote, “Eat a live frog first thing in the morning and nothing worse will happen to you the rest of the day.”

He used frog eating as a metaphor for task completion, in which the frog “is your biggest, most important task, the one you are most likely to procrastinate on if you don’t do something about it.” Finish that task as early as possible, and you can spend the rest of the day knowing that you’ve accomplished a big goal.

Resist the urge to complete smaller jobs first. Doing so will only feed your procrastination and won’t take you any further towards completing your big tasks.

When deciding on what to prioritize in your business, always put your highest-impact goals at the top of your to-do list. What step can you take today that will have the biggest effect on your company? Start with that, and either delegate or hold-off on the low-level tasks. This tough to do.

Follow the 80-20 Rule

The 80-20 rule, developed by Italian economist Vilfredo Pareto states that for many situations, about 80 percent of the effects or outcomes come from just 20 percent of the causes.

In business, the 80-20 rule comes into play when 80 percent of a company’s clients are generated from 20 percent of its sales staff, or when 80 percent of returns come from 20 percent of its customers.

Determine how the 80-20 principle applies to your business, then address that 20 percent so you can generate more results, or eliminate problems.

For instance, if you discover that 80 percent of your profits come from 20 percent of your customers, then nurture your relationships with those customers and reward them for their loyalty. Or perhaps you notice that 20 percent of your online marketing efforts are bringing in 80 percent of your site traffic. Stop spending resources on the low-performing strategies, and focus your efforts on the channels that work.

Have a Meeting Policy

If you must hold meetings in your company, keep them brief. Always have an agenda and a clear purpose for the meeting.

You may also want to consider having company-wide policies that tell people when and how to set-up meetings. Some companies for example, always hold meetings on the same day and time each week…e.g., Monday mornings, Thursday afternoons. This schedule enables people to plan their days and weeks more effectively.

Optimize your Relationships with Vendors

You optimize your site for speed and user-friendliness. Why not do the same for your suppliers and service providers?

Check with your vendors to ensure you’re working efficiently. Ask if there’s anything you can do to make their jobs easier, or recommend any improvements that they can implement. Don’t view your relationship as a service provider and client. Instead, treat your vendors as your partners.

Posted in Best Practices for Merchants, e-commerce & m-commerce, Electronic Payments, Environmentally Green, Internet Payment Gateway, Mobile Payments, Mobile Point of Sale Tagged with: agenda, business, ecommerce, loyalty, marketing, mind-mapping, online, optimize, organize, policies, prioritize, procrastinate, procrastinating, procrastination, spending, strategies, suppliers, task

How iOS 7 will affect apps for retailers and brands Webinar

Sponsored by Artisan Mobile, this webinar on Nov. 7, 2013 from 2 p.m. – 3 p.m. will cover the challenges and opportunities that will come with the transition to iOS as well as what it means for retailers and marketers that rely on the mobile medium for success.

The iOS 7 release is the most significant mobile operating system update since the launch of the iPhone. And while mobile developers are testing new features and debating the merits of Apple’s latest overhaul, it is not clear that  C-level executives are aware of the enormity of the effect that iOS 7 will have on retailers and marketers.

The Apple update brings along with it a new mobile user interface, new gestures, more sophisticated background processing support and auto-layout updates. The changes will not only affect existing iPhone and iPad applications, but will significantly shape app design strategies moving forward.

Posted in Mobile Payments, Mobile Point of Sale, Smartphone Tagged with: app, Apple, application, auto-layout, design, developers, executives, iOS, ios 7, ipad, Iphone, marketers, medium, mobile, Processing, retailers, strategies, success, update, webinar