Proof_The Retailer Spring 2018_FA

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retailer | SPRING 2018 | 21 20 | SPRING 2018 | retailer
where the threat lies: The retailers most
likely to succumb to purchase disputes
Monica Eaton-Cardone
Co-Founder
The Chargeback Company
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.
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.
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.
MONICA EATON-CARDONE
// +44 (0) 203 750 5550
//
//
“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.”