The Retailer Spring 2018

where the threat lies: The retailers most likely to succumb to purchase disputes

Monica Eaton-Cardone Co-Founder The Chargeback Company

“Retailers are paying a high price for disputes arising from customers exploiting loopholes in the system.

NO SECTOR IS SAFE FROM CHARGEBACKS—BUT SOME RETAILERS ARE MORE LIKELY TO SEE DISPUTED TRANSACTIONS THAN OTHERS. After a number of highly publicised data breaches over the past 12 months, it’s safe to say that data security is one of the main concerns for retailers. However, by myopically focusing on spotting traditional fraudsters, they risk missing their greatest threat: friendly fraud and payment disputes. Disputes (or chargebacks) are in place to protect consumers from unauthorised transactions and issues with their purchases. So if retailers have one too many claims against them, they’ll end up branded as fraudulent for regularly misleading consumers. Retailers are paying a high price for disputes arising from customers exploiting loopholes in the system. Consumers are denying their own transactions, tarnishing retailers’ good names and eating away at their profit margins. Many won’t admit there’s a problem, keeping their own chargeback figures behind closed doors. But we know the true numbers – it accounts for 70% or more of all credit card fraud occurring today – and the verticals that are hit the hardest include digital goods and educational services It’s a tough fight. In fact, 58% of merchants are unable to even identify what disputes are fraudulent, never mind knowing how to prevent them. The cold hard facts Proactively advocating policy reform for chargebacks and friendly fraud, we recently undertook a study of the current chargeback landscape, genuine and fraudulent, to assess the market and uncover which sectors need the most attention. Only by identifying the cause, can we tackle this industry-wide problem properly. Somewhat disappointingly, we found that up to 86% of chargebacks are caused by fraudulent action from consumers. This devolution of consumer behaviour is fuelled by the introduction of new payment methods and increased anonymity when shopping online. As a result, claims have increased 41% over the last two years. Denied transactions often leave retailers refunding the purchase, paying processing fees and losing the disputed goods – a huge loss for any business, whatever their size.

Meanwhile, later in 2018, Mastercard will be rolling out an update to its processes, upgrading a number of the rules governing authorisation and clearing. This doesn’t mean you can rest This is just a short summary of the changes taking place in the industry this year, which will have a significant effect on the risk of card and chargeback fraud. As well as combatting friendly fraud, the changes should reduce the number of consumers needing to make genuine chargeback requests in the first place. However, these changes alone will not safeguard retailers from all claims, and without correct knowledge and tactics, the issue isn’t going to disappear overnight. Bearing in mind that 40% of customers who successfully retrieve money back from a chargeback will file another within 60 days, every fraudulent chargeback that gets through the new regime will engender more later on. It’s crucial that everyone in the industry does more to tackle the issue. Retailers, don’t be complacent to the changes happening around you. Improve current processes and workflows to help rehabilitate behaviour and ensure customers do not continue to pose a threat to profits and liability.

With 82% of organisations currently disputing claims, this is a serious and growing problem, with real consequences. Who gets hit the hardest While no sector is safe from chargebacks, certain retailers are more likely to face claims than others… and reasons vary greatly from one vertical to another. We found that those selling digital goods or services have the biggest battle, with 30% of organisations reporting chargeback rates above 1%, compared with 21% of merchants selling tangible goods online. Retailers selling apparel and jewellery, and companies in the travel and leisure sectors, meanwhile, report chargeback rates below 0.5%. Success in challenging chargeback claims also varies from sector to sector. More than a quarter of retailers in the health and beauty industry have declared a chargeback revenue recovery win rate greater than 60%, compared with just 12% of streaming companies. As many as one in four food and beverage companies say they have a win rate of as little as 1%. We’re talking about huge chunks of a retailers’ revenue – and we advocate an “ideal” rate of less than 0.1% (which only 18% of retailers are actually achieving). Thanks to the abundance of chargeback claims that retailers are hit with, more than 10% of respondents admitted to being in high risk or excessive chargeback programs. To protect those who are suffering as result of false claims, we need to target and expose the friendly fraudsters. Minimising the threat Industry officials haven’t been blind to the ever-growing problem, and 2018 will hopefully see these figures drop as new rule changes take effect. By modernising and rationalising the dispute process, Visa’s news claims resolution, VCR, will bring tremendous benefits. To name just a few, VCR means a less complex dispute process (22 chargeback reason codes will now only be four groups: fraud; authorisation; processing errors, and consumer disputes), shorter timeframes for disputes (meaning quicker resolutions), and data-driven analytics so financial institutions have the information needed to expose the liable party – without automatically assuming retailer causation. Revisions have also been made to Visa’s Global Compromised Account Recovery (GCAR) programme modifications and payment account reference standards, in addition to changes to its Verified by Visa rules, designed to further improve the process for verifying transactions.

Consumers are denying their own transactions, tarnishing retailers’ good names and eating away at their profit margins.”

MONICA EATON-CARDONE // +44 (0) 203 750 5550 // monica@chargebacks911.com // thechargebackcompany.com

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20 | SPRING 2018 |

retailer | SPRING 2018 | 21