"Friendly Fraud" Expected to Top 130 Billion in 2020--Chargebacks Hurting Merchants and Consumers
Customer-is-king in today's retail landscape, but Fintech executive Monica Eaton-Cardone warns that if this "blind-eye" approach continues to surge without safeguarded payments practices in place, both merchants and consumers will reach an all-time record for ecommerce fraud.
TAMPA, Fla., March 3, 2020 /PRNewswire-PRWeb/ -- The rate of expected losses for retailers due to card-not-present fraud is expected to amount $130 billion by 2023, as credit card issuers and retailers are desperate to provide the consumer with a seamless customer service experience.(1) Monica Eaton-Cardone, an entrepreneur and global fintech executive who specializes in risk management and fraud prevention, is cautioning merchants to stop their "blind-eye" approach. Credit card issuers must exert diligent investigations and adjunction when consumers demand chargebacks, instead of catering to them as a concierge service. Eaton-Cardone warns that without this exertion, consumer bad behavior will increase, disowning legitimate purchases on the ecommerce merchants and a personal consequence for the consumer— an exponential increase in prices for products and services.
"Friendly Fraud"
By 2022, ecommerce will be responsible for 17% of all sales while one-third of the global population, or 1.92 billion people will shop online. Yet, amongst the total amount of illegitimate chargebacks, only 18% of the 80% of merchants that file disputes actually win. (1) For example, Facebook was at an all-time revenue high when children were using their parents' credit cards online to purchase Facebook games, often without parental awareness or consent. This pattern caused chargeback rates to reach 9%—18 times the standard maximum rate for online businesses, and four times the "red flag" threshold for the Federal Trade Commission. (2) This type of "friendly fraud" occurs when a consumer files a baseless chargeback, in effect disowning a legitimate purchase.
Rising Tide of Chargebacks
Chargebacks are also harmful to innovation. According to a recent study by Kount, 42% of businesses describing themselves as "very digitally mature" also stated they were holding back from digital innovation because of ecommerce payment fraud. (7) Many times, when chargebacks occur, it is the online merchant who bears the cost not only in terms of lost revenue, but in addition to penalty, in some cases, are exponentially higher than the initial disputed sale amount. Chargebacks can also affect the merchant's ability to process credit card payments, i.e. to remain in business. (5)
Stop Enabling Consumer's Bad Behavior
Merchants should combine a tactical approach to contest all unwarranted chargebacks. To do so, Eaton-Cardone has established consumer-friendly chargeback prevention tools:
- Answer all phone calls within three rings.
- Provide 24/7 customer service.
- Make return policies easily accessible from every page of your website.
- Offer fast shipping, along with tracking, and delivery confirmation.
- If you offer subscriptions using negative billing, make them "opt-in" rather than "opt-out."
- Consider offering bonus credit for customers willing to exchange goods for store credit.
Eaton-Cardone also emphasizes that these suggestions accommodate, rather than counteract, consumers' expectations of increased convenience. As a seller, a merchant should aim to offer a more suitable, pleasant customer experience—as long as it falls under the realm of proper security and responsible consumer behavior.
An additional much-needed change on the part of card issuers, is ensuring that friendly fraud is not free. For example, if a merchant successfully defends a charge, a fee or fine should be charged to the cardholder. Also, the card issuer should remove or reverse any add-on negative fees that affected the merchant.
Consumer Culture
"An overarching sense of entitlement," says Eaton-Cardone, "is not just found in the context of billing disputes. In today's consumer culture, it's everywhere." Significant unrest arose in the Apple customer community, for example, when the price of an iPhone reached one thousand dollars. Consumers demanded to know; how could Apple deny them this device's features by pricing them out of a purchase? (3)
"This is business," Eaton-Cardone says, "not sociology. One of the most significant issues confronting the payments industry in 2020 will be whether the industry stands against any narrative placing card issuers in a concierge role. By changing business practices to protect company assets, it will lead to a decrease in unethical chargebacks, a much easier approach than trying to change the ingrained consumer behavior.
Monica Eaton-Cardone frequently discusses fraud prevention, FinTech and security best practices at industry conferences and events around the globe.
About Monica Eaton-Cardone
An acclaimed entrepreneur, speaker and author, Monica Eaton-Cardone is widely recognized as a thought leader in the FinTech industry and a champion of women in technology. She established her entrepreneurial credentials upon selling her first business at the age of 19. When a subsequent eCommerce venture was plagued by revenue-leeching chargebacks and fraud, Eaton-Cardone rose to the challenge by developing a robust solution that combined human insight and Agile technology. Today, her innovations are used by thousands of companies worldwide, cementing her reputation as one of the payment industry's foremost experts in risk management, chargeback mitigation, and fraud prevention. As CIO of Global Risk Technologies and COO of Chargebacks911, Eaton-Cardone leverages her global platform to educate merchants on best practices in fraud prevention and to spotlight the competitive and economic advantages women can bring to the technology workforce. Her nonprofit organization, Get Paid for Grades, invests in students to inspire a new generation of innovators. Get to know Eaton-Cardone at http://monicaec.com
1. Vukova, Christina, "61+ Ecommerce Fraud Statistics to Help You Say Safe in 2020," Review 42, December 13, 2019, review42.com/ecommerce-fraud-statistics/.
2. Kain, Erik, "Facebook Turned A Blind Eye To 'Friendly Fraud' As Kids Racked Up Thousands On Games," Forbes, January 25, 2019, forbes.com/sites/erikkain/2019/01/25/facebook-turned-a-blind-eye-to-friendly-fraud-as-kids-racked-up-thousands-on-games/#266c56495ebf.
3. St. Onge, Peter, "Is a thousand bucks too much for an iPhone?", Charlotte Observer, September 11, 2017., charlotteobserver.com/opinion/article173020061.html.
4. Blancaflor, Madison, "The best reward cards for 2020," The Points Guy, February 4, 2020, thepointsguy.com/guide/top-travel-rewards-credit-cards/.
5. Eaton-Cardone, Monica, "New Decade, New Risks: Addressing Emerging Ecommerce Payment Fraud," Multichannel Merchant, January 17, 2020, multichannelmerchant.com/blog/new-decade-new-risks-addressing-emerging-ecommerce-payment-fraud/.
SOURCE Monica Eaton-Cardone
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