Executive Profile Series with Monica Eaton-Cardone from Chargebacks911
Why are chargebacks filed?
Chargebacks are filed as a remedy to a transaction issue where a cardholder was unjustly charged either as the fault of the merchant or due to criminal intent (i.e. their card number was stolen, etc.)
How are fraudulent chargebacks filed?
Whether the issue is fraudulent or otherwise, the method and process for filing a chargeback remains the same.
What is cyber shoplifting or “friendly fraud”?
This is the result of a chargeback that was filed, under the pretense of a legitimate claim (such as “merchandise was never received”, or “stolen credit card”). It is under pretense because the reality is very different. Friendly fraud is a type of fraud committed by consumers who use the chargeback method to essentially get something for free – a consumer may order a pair of shoes, receive those shoes – but later contact their bank and request a chargeback claiming they never received this merchandise. If the bank lacks the resources to do enough due diligence, the consumer may receive an immediate refund based on their claim alone.
How does cyber shoplifting affect merchants?
It increases costs for the merchants. With this type of activity, the merchant loses the cost of the merchandise in addition to the transaction value and fine or fee associated with the chargeback. It also increases their liability and payment processing risk: if a merchant receives too many chargebacks (regardless if they are due to cyber shoplifting or friendly fraud), they may lose their ability to process credit cards and be liable for significant fees and fines.
What are the consequences of cyber shoplifting for consumers?
Consumers who abuse this system can be added to a blacklist and blocked from using their credit card for certain purchases. They may lose the opportunity to return unwanted merchandise for a valid refund in the future. They can suffer credit consequences involving being sent to collection agencies and eventually having their credit damaged – and they can also be prosecuted for fraud in the event the merchant turns them into the police for criminal fraud. Cyber shoplifting is a punishable crime that hides behind a virtual landscape; however its cause and effect relationships mirror its brick and mortar sister “shoplifting” (otherwise known as stealing).
Why do banks give consumers the benefit of the doubt?
Banks subscribe to the same standards as merchants and any other business: “the customer is always right”. This philosophy is still a major tenant in our society and one responsible for significant advancements and positive progress in the payment industry. Without this belief, leaders wouldn’t listen to the needs and wants of consumers; and without this advice, we wouldn’t have taken necessary steps to help build a secure virtual transaction environment that is proving its success with record breaking online transaction growth rates, year-over year! Identifying friendly friend requires a logical and sensitive balance that works to dually; protect customer satisfaction levels while identifying/combating illegitimate transaction claims.
How do reason codes contribute to increased rates of cyber shoplifting?
Reason codes are used to code and classify the reason for a specific chargeback claim. With friendly fraud, these codes can be misleading; creating a masquerade of legitimacy when the reverse is true. Bottom line, the face value of these codes may deter the detection of friendly fraud, as the “real reason” of the chargeback remains hidden.
Why should banks reevaluate how to deal with chargebacks?
Issuers should consider exercising more due diligence in order to discourage friendly fraud and help improve cardholder education. Ignorance around the consequences of wrongfully filed chargebacks is one of the primary sources of their existence, and recent growth.
What changes have been made receiving that impact chargeback reason codes?
We predict that reason codes will be simplified and classified into three categories: merchant error, credit card fraud, compliance dispute. Additional parameters can be set for credit card fraud and mandatory due diligence tactics on the other two categories will help control and reduce the rise of friendly fraud.
What are your recommendations for changes that need to be made?
The card schemes need to add more human intelligence to supplement automated coding initiatives that were designed to solve the initial chargeback cycle, created in 1972. Technologies have advanced in payment processing and consumers today are more savvy and fluid. Therefore operating with solutions designed for yesteryear have no hope for solving today’s shortfalls. Standard methods and systems need to be redesigned with future prediction and growth trends in mind. The evolution of chargebacks needs to continue in parallel to its transaction counterpart: change affects us all and to the extent we all recognize this, we will collectively come up with intelligent solutions that are not only workable, but effective. The chargeback today, is an equal enemy to every member of the value chain. The sooner we can replace the ignorance around this topic, the better!