Chargebacks911 Dissects Key Types of Credit Card Fraud: Identity Theft to Friendly Fraud/Cybershopli
(Tampa Bay, FL) August 17, 2014 – Credit card fraud is responsible for enormous financial losses; while the estimates vary, most sources concur the annual cost is measured in billions of dollars (1, 2). Merchants and consumers are both at risk for this type of fraud, yet many are unsure of what it involves and how it affects them. Chargebacks911 (http://chargebacks911.com/), a leading dispute mitigation and risk management firm, aims to clarify the matter by defining the primary types of credit card fraud, analyzing the impact of EMV technology and sharing fraud prevention strategies.
Consumer Fraud
Broadly defined, card fraud may be used to describe any type of fraud or theft that involves a credit card or debit card as a source of funds for a transaction. It often involves identity theft by fraudsters, who initiate unauthorized transactions in a consumer’s name using stolen account information obtained via phishing, data breaches, skimming devices or other methods. To protect consumers from this type of fraud, many banks and credit card providers have zero-liability policies that guarantee cardholders will not be held responsible for unauthorized transactions.
Consumer Committing Fraud
While consumers are the victims in cases of identity theft, they are the perpetrators of another type of credit card fraud known as chargeback fraud. This occurs when an individual makes a purchase with a credit card and receives the merchandise or service, but later files an unwarranted chargeback request claiming that the goods were defective, not as advertised or never received, or that the transaction was unauthorized. In such cases, the merchant bears the financial consequences of a customer’s fraudulent activity, losing not only the sale but also the merchandise, shipping costs and chargeback fees of $10 to $40 per transaction, and potentially even losing the ability to process credit cards.
Ironically, chargeback fraud is commonly known within the industry as friendly fraud—a term that Chargebacks911 co-founder and Chief Operating Officer Monica Eaton-Cardone feels is a misnomer. “There’s nothing ‘friendly’ about this type of fraud, which penalizes honest merchants when deceitful cardholders intentionally set out to obtain goods for free,” she asserted. “Let’s be honest and call ‘friendly fraud’ what it really is: cybershoplifting. Whether fraud is committed by organized criminals or ordinary consumers, it’s still stealing at another’s expense.”
A recent report revealed that U.S. retailers lost an estimated $32 billion to fraud last year (1), while another source noted that in 2012, chargeback fraud alone accounted for $11.8 billion (2). America’s impending upgrade to EMV technology, which uses microchip-embedded cards for enhanced security, is designed to thwart skimmers and other sources of counterfeit cards. However, experts predict that this development will merely shift a greater proportion of fraud to online channels (1).
The Cost of Friendly Fraud, aka Cybershoplifiting:
- Mobile channel fraud costs merchants $3.34 per dollar of fraud losses;
- Mail and telephone fraud costs $3.34 per dollar of fraud losses;
- Online merchants pay $2.69 in fees per dollar of fraud;
- When all payment channels are analyzed together, fraud costs an average of $3.08 on the dollar (up from $2.79 in 2013).
The average merchant suffered 133 successful fraudulent transactions per month, a 46% increase from 2013. It is obvious that merchants are confronting more incidents of friendly fraud than ever before; and with a growth rate of 41% over the last two years alone, there is no indication of this statistic slowing down, per Eaton-Cardone.
In addition to this growing fraud source, new card-chip technology (EMV) is also predicted to incite increasing chargeback trends. Credit card thieves who have made a practice of stealing cardholder data through swipe method skimming devices will be put out of business beginning in October this year, according to Visa and MasterCard. This is due an industry-wide mandate to replace swipe technology with pin and chip technology – making methods of stealing data from physical cards nearly impossible. Historically, every country that encounters this transition suffers an initial consequence of increased online fraud. The tides are changing in the payment industry as criminal enterprises migrate to unforeseen loopholes of an ever-changing virtual landscape. eCommerce merchants suffer the most risk.
Eaton-Cardone tells merchants to prepare. “Internet retailers won’t just be dealing with illicit chargebacks from rogue customers, but they’ll soon be contending with multiple fraud industries, leveraged through complex and evolving payment technology,” explained Eaton-Cardone
Chargeback prevention is a complex task; there isn’t a one-size-fits-all approach which Eaton-Cardone has been educating the payments and banking industry on. For merchants, risk mitigation techniques need to adapt and change as technology changes. There are, however, 35 tried and true tactics that help mitigate the risk of chargebacks and increase profit retention, whether they are for detecting fraud or streamlining the transaction process.
To help combat cybershoplifting and online fraud, Eaton-Cardone invites online merchants to download Chargebacks911’s free eBook on preventing chargebacks.
Chargebacks911’s comprehensive dispute mitigation and risk management services leverage proprietary technologies and human expertise. For more information on the company and its chargeback management solutions, visit http://chargebacks911.com.
About Global Risk Technologies and Chargebacks911:
Global Risk Technologies is most known for its role in payment processing solutions that cater to each side of the value chain: Chargebacks911.com and eConsumerservices.com. The firm is headquartered in Tampa Bay, Florida, with offices in Ireland and Atlanta. They have approximately 350 employees worldwide and currently manage over 200MM transactions worldwide each month.
Chargebacks911 is a division of Global Risk Technologies, and was developed specifically for merchants to offer immediate aid through proprietary technology and provide the necessary function that gives merchants the freedom to focus on their core competency and optimize their in-house skill set. Chargebacks911 focuses on chargeback mitigation and risk management. They specialize in servicing Internet merchants and acquiring banks, offering dispute response solutions and deep analytics. Chargebacks911 works with their client base to help them keep dispute rates down and retain their ability to accept credit cards. For more information, visit www.chargebacks911.com.
- Heggestuen, John. “Payments Companies Are Trying to Fix the Massive Credit-Card Fraud Problem…”; Business Insider; July 28, 2015. businessinsider.com/how-payment-companies-are-trying-to-close-the-massive-hole-in-credit-card-security-2015-3
- Rampton, John. “Why ‘Friendly Fraud’ May Become an E-Commerce Nightmare”; Inc.; January 22, 2015. inc.com/john-rampton/why-friendly-fraud-may-become-an-e-commerce-nightmare.html