Presenting at this year’s Merchant Payments Ecosystem, Global Risk Technologies™, parent company of Chargebacks911, drove home the point that the industry cannot be complacent in the fight against the growing trend in chargeback fraud.

MPE 2016, hosted in Berlin, covered a wide spectrum of payment issues this year, as over a hundred high-level industry speakers presented to 600 industry peers and potential partners in a frenetic 3 days of activity.

It gave us the opportunity to raise the issue of chargeback fraud, something that does not always have the attention it really deserves.

The Lexis Nexis’ report we used to illustrate the threat of chargebacks to merchants reveals some shocking statistics from its True Cost of Fraud research:

  • 41% annual increase in chargeback fraud
  • 50% who claim a chargeback will do it again within 90 days
  • 6 billion cardholder disputes
  • Over 500,000 online stores affected

We believe that the situation has since deteriorated, based on our own company’s research.

We also drew on data from Vesta’s 2014 Javelin Report The Impact of Fraud and Chargeback Management on Operations. It did not make much better reading:

  • $118 billion spent to prevent $9 billion in actual fraud
  • Card-not-present fraud growth
  • More exploitation of new loopholes

So why is friendly fraud growing?

We can point to a range of reasons including evolving contactless payment methods, the pressure for banks to resolve disputes faster, a lack of standards and a shortfall in understanding and action from banks and merchants of the issue.

Merchants have the ever-constant challenge of reducing shrinkage and increasing profits.  This is being further undermined by chargebacks, which can carry little or no repercussions for those that take advantage of the situation.

Merchants claim they cannot justify the resource required to combat the growing trend of chargeback fraud as they need to provide compelling evidence to pursue friendly fraud.

There are some practical steps that can be implemented that will start to make an impact against these intolerable practices:

  • Reduce the amount of automatic chargebacks
  • Increase consumer retention by focusing on core competency
  • Opt for security, including a bi-layer approach
  • Institute accountability for malicious friendly fraud
  • Increase the costs associated at the issuer level for filing chargebacks

We advise all merchants to fully pursue and accept legitimate sales, while taking account of chargebacks.  There is no reason why friendly fraud should be accepted: the fightback starts now!