Why it works: Global Risk Technologies explains how chargeback technology can benefit e-commerce retailers


With consumers predicted to spend a staggering £107bn online in 2014 and cybercrime costing businesses across the globe an estimated £265bn, the risk to retailers has never been greater. Monica Eaton, CIO and co-founder of Global Risk Technologies, highlights how chargeback solutions can benefit e-commerce retailers and limit chargeback costs

Monica Eaton Photo

Eaton: friendly fraud is number one retail enemy

What exactly is a chargeback?

A chargeback is the return of funds to a consumer, after the customer successfully disputes an item on his or her bank statement or if there is a problem with an item they have ordered. In almost every chargeback case the card issuer will always go in favour of the consumer, meaning the retailer constantly loses out.

Retail has been shaped by the multi-channel era and consumers are now choosing to shop online, on mobile and tablet devices. With an increase in online sales, comes an increase in online fraud. As consumers are now choosing to shop more and more through digital channels, retailers are facing an increasing amount of online payment transactions that need to be protected across each and every platform.

What are the common chargeback frauds?

As one of the two main types of fraud that effects today’s retailers, accidental ‘friendly fraud’ involves the consumer reporting a charge because they don’t realise another member of their household made the purchase or the charge information on their statement doesn’t match up to a recognised retailer name, which can happen if the retailer uses a third-party payment system like PayPal. Whether it’s a child or spouse, if the transaction was made without the consent of the card holder, the merchant will be subject to a chargeback.

The other type of fraud and perhaps the most damaging to retailers is ‘friendly fraud’. Boasting an explosive growth rate when it comes to online transactions, friendly fraud Involves an act by a consumer making an online purchase and then contacting their bank, stating that the transaction was not their doing, resulting in a chargeback – has become the number one enemy to ecommerce retailers today. It is extremely difficult to target or treat because the criminal in these cases is a consumer who is normally the least suspected; protected behind a guise of rationale, subjective interpretation, or even naive ignorance of the fact that there are consequences for their actions.

What does this mean to a merchant? 

With merchants loosing 60% of chargeback disputes and Visa reporting $11.8bn in friendly fraud losses compared to $2.7bn in identity theft in 2013, whether a chargeback is intentional or not, retailers are losing billions. Retail is all about gaining the trust of the consumer, so retailers need to have the prevention tools in place to protect themselves and their customers from the risks.

Accidental and friendly fraud can lead to some retailers being classified as ‘high risk’ in a way you would expect merchants from traditionally high risk sectors, such as gaming and gambling, purely because of the number of chargebacks. The risks that retailers can face from high chargebacks can be astronomical, the fines and the potential loss of card acceptance for smaller or pureplay retailers could potentially put them out of business.

What can retailers do to protect themselves? 

Stable merchant processing is a vital ingredient to e-commerce success and chargebacks can create serious liabilities where this is concerned. In today’s marketplace, retailers must consider proactive efforts that help fight friendly fraud and reduce the likelihood of chargebacks.

For retailers to protect themselves as well as consumers, one of the most valuable elements to have is a security solution that is the heart of their e-commerce strategy. This will enable them to ensure protection is always a key focus of the business and protect consumer’s confidential data from a possible breach.

Retailers who sell their products online, but don’t offer online support will have a higher rate of friendly fraud than those who do. Modern day consumers expect instant gratification and are more likely to contact their bank if the retailer is unavailable to assist with a refund request or cancellation.

A key protection tool for retailers to embrace is to monitor suspicious activity. Whether keeping an eye out for multiple product orders with the same shipping address, but different credit cards, or IP addresses that don’t match the billing address, all these are signs of suspicious to friendly fraud and retailers need to have the right tools in place that automatically warn them of unusual activity.

It has taken years of education on the chargeback process to educate retailers about its importance. The good news is there are solutions available for e-commerce payment processing that combat the risks of chargebacks.

For more information about Global Risk Technologies please visit www.globalrisktechnologies.com

(A Retail Times’ sponsored article)