Two decades ago, the retail experience mainly consisted of brick-and-mortar stores, restricting consumers to operating hours and limited payment options. Today, with a connected environment and 24/7 access, consumers expect the freedom to shop where they want, when they want, and how they want. In this piece, Neil Smith, Regional Head of Issuer Sales & Partnerships, EMEA at Verifi, tells RetailTechNews how, alongside this newfound freedom, comes increased risk of financial exposure; and as the retail landscape evolves, so too does the threat from fraud.
With 20.35 billion connected devices owned worldwide, nearly 3.58 billion global users surfing the web, and 1.66 billion purchasing online in 2017, it’s safe to say we’re in the era of the omnichannel customer. However, unbeknownst to many consumers, more channels mean more pathways for fraudsters to exploit.
In this world of omnichannel e-commerce, consumers use numerous payment methods to complete online purchases, from card or wallet solutions, to one-click and contactless pay.
To deal with this demand, merchants are increasingly adopting one, or a combination of three, omnichannel models:
Brick2Click – Where there is seamless integration between the offline (‘bricks’) and online (‘clicks’) store. An example of this is the consumer buying online and collecting in-store.
Device2Web – A device-centric payment method, where the consumer can interact with the online store at multiple touchpoints, e.g. smartphones, tablets, or IoT devices.
eAve2Web – Where purchases are fulfilled via a third party, such as Amazon, eBay, or Groupon. This sales method can exist alongside either of the above methods.
For most merchants, it is not possible to cater to every single possibility, but the more choice and convenience offered to consumers, the more opportunities to complete a sale. However, with opportunity comes potential challenges, and many omnichannel merchants currently face card-not-present (CNP) fraud and a rise in chargebacks as a result. CNP fraud typically occurs when a criminal uses stolen card details to buy something on the internet, over the phone, or through mail order – and this is becoming increasingly common due to a rise in data hacks, phishing emails, and scam text messages.
But CNP fraud isn’t always the result of a malicious criminal attack. In fact, CNP fraud can be the consequence of unintentional purchases, including: children buying online subscriptions without parental consent; consumers purchasing on-demand movies without permission; or even one-touch purchases being too quick for the consumer to realise they’ve made a commitment. All the above cases are considered ‘friendly fraud’, which occurs when a consumer makes a CNP purchase and then contacts their card-issuing bank to file a chargeback claim.
Unfortunately for merchants, consumers are beginning to abuse the chargeback process, manipulating the system to recover funds on an otherwise legitimate purchase. With e-commerce continuing to expand, and merchants catering to a multitude of payment options, it’s essential that merchants install an agile platform that monitors all transactions and consumer activity to provide a record of where, when, what, and how a purchase was made.
Further still, in order to fight fraudulent activity beyond installing identity and authentication measures, merchants should have a clear understanding of the chargeback process:
- The consumer contacts their card-issuing bank and queries a charge. This could result in the consumer asking for a charge to be reversed.
- The bank reviews the request. If the request is considered valid, the bank applies a provisional credit, or it declines the request if there is not sufficient evidence to support the claim.
- When a provisional credit is given to the consumer, the issuing bank initiates a financial transaction using the card scheme network that involves collecting the funds from the merchant’s acquiring bank.
- At this point, the bank should notify the merchant that a chargeback has been filed. The investigation into the chargeback really begins.
- Merchants will be asked to provide detailed documentation as evidence to help fight the chargeback, if they choose to do so. Such documentation includes: proof of purchase, transaction receipt, consumer authorisation of the purchase, proof of posted refund and return policy, any details from conversations, emails, chats with the customer service team, sale confirmation emails, and approval of the charge to the credit card. This information can be challenging to collect, but it is very important when proving a chargeback is in fact chargeback fraud. If the merchant does not provide the compelling evidence within the time frame specified by the card scheme, they essentially ‘accept’ the chargeback liability.
- If the merchant wins the case, based on the evidence provided, the consumer will be held responsible for payment of the purchase. If the merchant loses, they will be expected to cover the cost of the chargeback and pay for any fees imposed on them by their bank and the credit card association.
As the retail experience continues to evolve, so too does the threat from fraudsters. In a world of the ‘anytime, anywhere’ consumer, retailers are fast implementing appropriate security measures. But sometimes this simply isn’t enough. Fraudsters will always find an inroad for their exploitation, and some consumers, whether out of ignorance or intention, will still seek to recuperate an unrecognised payment. In addition to upgrading firewalls and online security, merchants should familiarise themselves with the chargeback process. Utilising a network of issuer-merchant collaboration can help merchants to reduce the time needed to close disputes and also recoup potentially lost revenue. With such tools, merchants can present irrefutable evidence that a claim made through the chargeback process is either legitimate fraud or friendly fraud. Only then can they begin to win the fight against cyber criminals and dishonest consumers.
The article first appeared on RetailTechNews on May 25th, 2018.