Searching for increasingly user-friendly solutions for fraud triggers

First-party abuse – known as “friendly” fraud – can be difficult to detect, and reducing it is a tricky issue in distinguishing true policy abusers from innocent parties. Either way, it ends up in chargebacks, extra costs, and missing goods for merchants who consume those losses.

It’s a problem that’s been compounded with the rise of e-commerce and restaurant delivery aggregators, reaching a point where the friendly fraud is more important than the purely criminal variety.

Moreover, detection and prevention are hampered by traders who put together different tools that lack integrated views of this illicit activity and prove to be ineffective.

PYMNTS recently investigated the issue in the Dispute-Prevention Solutions: Third-Party Tools Limit Dispute-Related Losses study, a collaboration with Verifi that surveyed more than 300 merchants across four categories, which found that consumer misuse first party is now sellers’ biggest fraud problem.

We found that 61% of merchants handled customer disputes over card misuse by a family member of the cardholder, for example, leaving merchants with the difficult decision of whether to say no to the refund request from a good customer because they claim they didn’t authorize a purchase. .

This can be a costly judgment, as allowing this results in losses and denying claims can cost them good customers, who have many other options and may walk away.

Showing the complications, our study found that 54% of merchants “over-identify fraudulent disputes from family members attempting to make an unauthorized purchase, and 62% misreport customer disputes over a product that hasn’t never been delivered as a fraud”.

However, only 40% of merchants described their current dispute management systems as “very” or “extremely” effective at detecting unauthorized purchases by family members.

Highlighting the extent of first-party abuse, commerce protection platform Signifyd announced in late May the launch of the Signifyd App for Stripe as part of the new Stripe App Marketplace, “providing instant insight into consumer claims. chargeback directly through the Stripe dashboard”.

“Overall fraud pressure – a measure of orders with enough red flags to be considered fraudulent – ​​was more than 400% higher at the end of the first quarter of 2022 than it was before the pandemic. And in the first quarter of 2022, consumer abuse increased by more than 150% compared to pre-pandemic days,” according to Signifyd.

Get the study: Dispute prevention solutions: Third-party tools limit litigation losses

Breaking the “zero liability” rules

As friendly fraud skyrockets during winter break 2021 and has been on the rise ever since, the National Retail Federation (NRF) is hosting its NRFPROTECT 2022 event June 21-23 in Cleveland to rally behind upgraded approaches and systems to combat the pernicious problem.

In a Monday, June 13 blog post ahead of the event, NRF Vice President of Education Strategy Susan Reda said incidents of valid cardholders abusing the networks’ “zero liability” rules worsen “as consumers become more educated about how the rules work and the low level of risk associated with it… Economic dislocations, such as significantly higher prices due to inflation, absolutely cause friendlier cheats.

Speaking to PYMNTS in early June, Eric Kraus, vice president and general manager of fraud, risk and compliance solutions at FIS, described different types of fraud, such as refund fraud where refunded goods are never recovered by merchants, or otherwise good customers giving bad impulses. for a gift.

He said merchants can combat this by keeping an eye on purchases “for attributes indicating friendly fraud. Among the telltale signs: Larger-than-normal or higher-velocity purchases, especially with popular merchandise in dealer markets, should set off red flags for further review or investigation. »

Kraus told PYMNTS that processes to “track and monitor repeat offenders – creating a denial list that can be cross-checked before accepting a suspicious order” is one method used, while behavioral analysis “can help identify suspicious patterns in advance, if a merchant has a transaction history with a consumer.

See also: New technology helps merchants and banks stave off rising tide of friendly fraud

Food delivery is another area where friendly fraud takes a big bite out of it. Again, it can be difficult to spot the real fraudsters among wandering customers who get reimbursed for entire meals for minor complaints (eg, “you forgot the hot sauce”), leaving restaurants to hold the bag.

Bala Kumar, Chief Product Officer of Jumio, told PYMNTS, “We’ve seen over 18% to 22% fraud related to [the food delivery] sector. This is not a joke. It really goes back to the controls that we have in place to prevent normal fraud and also to prevent friendly fraud, especially family fraud, which is a big part of that.

See also: Identity verification helps food aggregators reduce friendly fraud

Against this backdrop, our research found that 77% of e-commerce merchants are investing in chargeback prevention strategies or planning to do so this year.

According to “Tackling The Chargeback Surge”, a collaboration between PYMNTS and Ethoca based on surveys of 3,557 consumers and 1,036 e-commerce retailers in three countries, “most merchants intend to put outsourcing at the heart of these strategies, 52% of all merchants surveyed plan to leverage third-party solution providers to help them combat chargebacks,” and 45% plan to outsource chargeback prevention entirely.

Get the study: Coping with the wave of chargebacks



About: PYMNTS’ survey of 2,094 consumers for The Tailored Shopping Experience report, a collaboration with Elastic Path, shows where merchants are succeeding and where they need to up their game to deliver a personalized shopping experience.

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