Friendly Fraud – The Headache that Arrives After Holiday Cheer Ends

Black Friday and Cyber Monday can undoubtedly do wonders for revenue, but many merchants forget that the holiday season also brings about increased headaches and costs associated with friendly fraud. Much like a New Year’s hangover, the real pain of this headache isn’t usually felt until right after the holidays are over.

Often resulting in chargebacks, friendly fraud occurs when consumers receive their credit card statements and the reality of their expenditure triggers buyer’s remorse. As a result, the consumer contacts their card issuing bank to dispute or reverse the charges. Fearful of losing valued customers, and often without detailed transaction information, issuers tend to offer refunds or initiate chargebacks.

Adding fuel to the fire, some consumers dispute legitimate transactions due to billing confusion, such as the merchant’s name not matching their trading name on a billing statement or forgetting about a purchase made. Consequently, merchants face loss of revenue and merchandise, plus fines and fees associated with chargebacks that are applied by acquiring banks.

Within a cardholder agreement lies a rule directing consumers to first dispute a charge with the merchant. However, according to a recent study Verifi commissioned with Javelin Strategy & Research called “The Chargeback Triangle,” it was found that that up to 76% of the time consumers do not call the merchant, but rather go straight to the issuer. In bypassing the merchant, consumers leave the merchant no chance to resolve a dispute and prevent a chargeback.

To prevent severe losses, merchants and issuers must collaborate and share transaction information to resolve issues at the earliest possible stage. With rising sales ringing through the registers on Black Friday, Cyber Monday, and the entire holiday season, merchants need to ensure they deliver the best customer experience while arming themselves against chargebacks at an already frantic time of year. “The Chargeback Triangle” study found that collaboration between issuing banks, merchants, and consumers can significantly mitigate fraud and chargebacks.

From our perspective, we have found that forward-thinking financial institutions and merchants are already looking to data-sharing to help them better understand consumer purchase behavior, as well mitigate avoidable disputes. One example of a data-sharing solution is Order Insight®, an advanced collaboration platform launched in 2016, which connects merchants, issuers, and customers to access accurate and timely purchase data to the benefit of all. By being able to share and access data – such as purchase item description (size, color, style), date of purchase, merchant’s name and contact information, customer’s device used, IP address, etc. – it was observed that overall volume of chargebacks can be significantly reduced. With Order Insight up to 55% of disputes are deflected in near real-time. Implementation of Order Insight also results in fewer fees and penalties imposed on merchants, but most importantly the retention of profits and improved customer relations.

Leveraging of data not only boosts a merchant’s bottom line and saves operational costs for issuers, but also helps to preserve consumer confidence and build loyalty. This is particularly important during the holiday season, as merchants are looking to not only have regular customers continue their patronage, but also cultivate new loyalties from previous one-time shoppers. Shared connection between merchant, consumer, and issuer makes for a better sales experience for all parties – and helps to heighten seasonal cheer as well.

Chris Marchand is VP, Business Development at Verifi

Chris has been in the payment space for over a decade and has helped some of the world’s most recognizable brands mitigate CNP risk, recover revenue, reduce churn, and retain customers. In addition to his strategic business development and partnership responsibilities, Chris is a regular speaker at payment industry conferences, educating merchants on payment fraud and risk mitigation, dispute and billing management, and customer retention strategies.

Chris has two great kids and loves spending time outdoors. He was a Division 1 baseball player and is an avid New England sports fan.