Fighting Chargeback Fraud in the Age of One-Click Payments

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Fighting Chargeback Fraud in the Age of One-Click Payments

By Monica Eaton-Cardone - 04/14/2016
Visa’s latest online retail platform, Visa Checkout, looks to be doing fairly well for itself. The service boasts strong growth and high conversation rates, and the enhanced security offered by Visa Checkout’s tokenization technology continues to attract new converts every day.

However, chargeback experts caution that it does not protect against friendly fraud—and may even contribute to rising chargebacks.

What is Visa Checkout?

Visa unveiled Checkout in 2014, promoting it as a quicker, easier and more secure way to pay online. In order to make a purchase, users need only enter their username and password with any merchant who accepts Visa Checkout, eliminating the time-consuming process of entering card info, billing and shipping addresses.

Thanks to tokenization technology, no card information is actually transferred during the checkout process, making it more difficult for criminals to steal cardholder information.

Visa Checkout and Chargeback Fraud

While Visa Checkout offers great new degrees of security and convenience for cardholders, unfortunately the program does little to counteract friendly fraud.

Friendly fraud, or chargeback fraud, happens when a cardholder seeks an illegitimate bank-issued refund. Rather than request a traditional refund from the merchant, the cardholder asks the bank for a chargeback. This might happen because:

-         The cardholder experiences buyer’s remorse.
-        The original intention was to get something for free (cyber shoplifting).
-        The cardholder doesn’t recognize the transaction or forgets about making the purchase.
-         The cardholder incorrectly assumes a chargeback and a traditional refund are the same; the bank fails to execute sufficient due diligence to identify illegitimate claims.

With platforms like Visa Checkout making online shopping seem even more attractive, we are likely to see a rise in online consumer spending, which means a correlated rise in the number of chargebacks merchants experience.

There are various ways to reduce the risk of friendly fraud:

-        Improve Customer Service: A simple way to prevent chargebacks is to provide great customer service. Be sure to publicize contact information, promptly reply to emails, provide human-to-human engagement with each phone call, check social media accounts regularly, provide 24/7 support, and critically evaluate your policies and procedures.

-        Create a Risk Management Plan: Learn to identify threats early, and have a plan in place to deal with fraud before it becomes an insurmountable problem.

-         Balance Security with Customer Service: Customers expect a safe and speedy checkout process. You will need to find a balance to ensure security without sacrificing service.

-         Use a Blacklist: Blacklists ban known fraudsters from doing business with you.

-         Analyze Recurring Transactions: Recurring transactions are a great profit source, but only if they don’t become a liability. Discuss the terms of service with your customers, make it easy to cancel service, fulfill cancellation requests quickly, announce rate changes well in advance, and send a reminder before charging customers each month.

These are just some of the most popular friendly fraud management techniques. We actually wrote an entire e-book on the subject (download it for free here). It is essential for merchants to understand the friendly fraud threat and be prepared to recoup revenue lost to illegitimate chargebacks.

The payment industry is constantly looking for opportunities to increase consumer spending, but merchants need to take their suggestions with a grain of salt. Friendly fraud is as common as it is difficult to fight. Will new payment options actually increase your risk?

-Monica Eaton-Cardone, Chief Operations Officer, Chargebacks911



Monica Eaton-Cardone is Chief Operations Officer for Chargebacks911, a chargeback remediation & loss recovery service. For more information please download the free chargeback prevention eBook.