The COVID-19 outbreak has not only forced many businesses to close until it is safe for them to reopen, but most have also faced increased costs and risk. This is especially true for chargebacks and fraudulent payment disputes – otherwise known as ‘friendly fraud’.
For this reason, we spoke with Chargebacks911’s CIO and Co-Founder, Monica Eaton-Cardone, about the impact the virus has had on payment disputes and what businesses can do about it.
PaymentExpert: Can you explain further the impact you believe the elevated level of ecommerce activity has had on friendly fraud?
Monica Eaton-Cardone: Sadly, the digital migration from consumers in response to COVID-19 has created a fertile ecosystem for fraud – especially the “friendly” kind. There are a number of reasons for this:
- Anonymous online identities make false claims which are both easier to commit and less impactful on a customer’s conscience than in-store claims;
- Since sales now heavily rely on non-contact deliveries, it’s harder to prove that customers have received items that they claim haven’t arrived;
- There is a lot of confusion right now, particularly around event and travel bookings;
- There is extreme economic pressure right now caused by redundancies and furloughs, so consumers will be more willing to make false claims to free up money from past purchases;
- Changes have happened very quickly, so merchants and financial institutions have struggled to keep up with operational restructures and the increased number of claims.
All of these factors have added up to a sharp spike in friendly fraud, and we can expect it to continue increasing as lockdowns are lifted. This is because 40% of customers that commit friendly fraud are statistically proven to do so again within 60 days after a successful claim.
It is therefore incredibly important for businesses to learn how to spot and mitigate friendly fraud, otherwise they are left appearing weak and open to future attacks.
PaymentExpert: How has customer profiling had to change throughout this period?
Monica Eaton-Cardone: The work to profile customers and identify who is acting legitimately or fraudulently has only increased for merchants and financial institutions. For example, previously whitelisted consumers may have turned to fraudulent claims under the recent financial strain. The psychographics, behaviour and environmental impacts have all changed dramatically – making their job more difficult.
So, we look specifically at the dispute claims to find out which customers are acting genuinely and which are not. Our two-pronged approach of human forensics and detection technology effectively helps our clients to identify the cause of the chargeback claims that they’re receiving. We can then help to either mitigate false claims or mend the inefficient business practices that caused an authentic chargeback.
With the sudden increase in both types of payment disputes (real and fraudulent), learning this skill or working with people who can help is critical during the pandemic.
PaymentExpert: For high-risk sectors, how and why do you believe the impact has differed?
Monica Eaton-Cardone: The key reason that the impact has varied for high risk industries is down to the mix of what activities consumers are able to partake in and what’s currently off-limits.
For example, the online gaming and digital sectors have experienced a sudden increase in transactions and activity while people are forced to stay at home and are looking for ways to entertain themselves. As a result of this behavioural change, the online gaming industry and digital sector saw payment disputes grow by 18% and 31% respectively since 1st March.
Meanwhile, travel and entertainment companies have been at the plight of global lockdowns which have forced holidays and events to be cancelled across the board. Now, businesses are left handling an incredible amount of refunds, while many customers turn to the chargeback system to regain their money. Consequently, between February and April, some airlines saw chargeback issuances increase by 100%.
PaymentExpert: What type of effect has the crisis had on chargebacks?
Monica Eaton-Cardone: In the past few weeks, we have tracked an overall increase in chargebacks by about 23%. While changes in consumer behaviour, event cancellations and an increase in online activity have all contributed to this, supply chain disruptions, shipping delays and labour shortages are all resulting in problems, too – since many orders are arriving late or aren’t arriving at all. This has caused a spike in genuine chargebacks.
On top of this, many merchants are struggling with their customer support centres due to changes to daily operations, a higher number of customer queries, and reduced staff numbers due to furloughing. This causes unhappy customers who are more likely to file a chargeback than work with their merchant to resolve an issue.
PaymentExpert: How can chargebacks and friendly fraud be combatted, even during a time when firms have had to show extra flexibility?
Monica Eaton-Cardone: The worst thing a merchant can do now is just accept chargebacks and friendly fraud as a cost of doing business – they weren’t before COVID-19 and they certainly aren’t now. The first steps we’d recommend a merchant taking will actually help strengthen the customer relationship at this time.
Firstly, we’d advise merchants to optimise their internal processes and amend errors that cause genuine chargebacks. This is things like ensuring all product information is accurate so consumers know exactly what they’re buying, investing in customer support centres to answer any queries, and having a clear refund policy.
Merchants should also keep clear records of transaction and data in case a dispute is filed. This can be used as evidence against a fraudulent claim.
Still, the most critical skill businesses can learn in our current climate is how to distinguish between genuine and fraudulent chargebacks. This can be done by analysing both pre- and post-transaction data to establish their source, but it’s particularly hard without third-party support. Experts can help clarify which disputes to mitigate and which to accept. Only by knowing this can a merchant respond to disputes effectively, without risking losing customers or refunding instances of friendly fraud.
To learn more about effective ways to manage chargebacks during the COVID-19 pandemic, visit: Chargebacks911.com