Tackling the unpredictable is so 2020… Here are three menacing chargeback risks that we know lie ahead

Chargebacks hit a new high last year, with some industries facing 10 times more claims than prior to the pandemic. And this trend isn’t slowing down.

Masses of retailers are going digital or introducing new online capabilities into their business; many more are facing issues with the supply chain, delivery delays, and staff shortages. Together, this has created the ideal breeding ground for both genuine and fraudulent chargebacks.

To halt this growth in its tracks, retailers need to identify where these chargeback claims are coming from and counteract them before more of their profits are unnecessarily lost.

A retailer is hit multiple times from this fraud attack – losing the money, product, and cost of chargeback administration fees.

As a start, these are three prominent threats that we have identified:

1.   Click-and-collect
Click-and-collect was growing in popularity long before the COVID-19 pandemic. In 2019, Barclaycard projected that, in the UK, the shopping method would grow 45% and be worth almost £10bn by 2023 – this was in large part due to the convenience it provides. But when lockdown and social distancing guidelines were enforced, convenience was paired with necessity, and click-and-collect was brought further into the mainstream.

Positively, this has provided omnichannel retailers with the opportunity to continue to draw in custom during a challenging time. However, we’ve begun seeing fraudsters take advantage.

On a global scale, there was a 55% increase in fraudulent attempts to purchase online for in-store collection in the first half of 2020. If successful, it leaves victims who have had their details stolen instigating chargebacks to get their money back.

For this reason, retailers should ensure strong authentication tools are implemented at the online checkout, such as biometrics, two-factor authentication, one-time passcodes, etc., and always remember to ask customers for their ID when they pick up a purchase.

2. FaaS aiding newbie fraudsters
What better way to make some extra cash than by dabbling in a bit of fraud? Anyone can do it and from the comfort of their own home!

Down in the underground of the dark web, fraud-as-a-service (FaaS) is thriving. FaaS is where fraudsters operate in a similar manner to any legitimate business. By this, I mean they provide an online service where other, less experienced fraudsters can buy or subscribe to the tools or data needed to commit online fraud – they can even purchase courses explaining how to properly execute fraud. Others simply pay those more experienced than them to commit fraud on their behalf.

What makes this type of fraud so tricky for retailers to counter is that it’s more than just a single act of fraud to spot, but an operation with huge amounts of time, money and tech expertise filtered in.

For attacks on a retailer using stolen card information, the victim will likely file a chargeback claim – again resulting in multiple losses for the retailer. This type of fraud can also cause reputational damage for the retailer since they didn’t prevent the fraud in the first place.

With new threats coming from every angle, retailers should consider their fraud management strategy. Is it dynamic and responsive to new and developing threats? Does it properly harness all the data needed to identify legitimate buyers and filter out fraudsters? These sort of questions are more important now than ever before thanks to the allure and ease of FaaS to newcomers on the fraud scene.

3.   Friendly fraud
Another threat caused by the rise in online shopping and the anonymity it provides is friendly fraud. Overwhelmed supply chains and delivery services, coupled with the need for COVID-secure non-contact deliveries, has increased the opportunity for consumers to claim that parcels didn’t arrive. An illegitimate chargeback claim too often ends up with the money straight back into the consumer’s account with the retailer paying the cost.

This situation has only been exacerbated by the impact of the economic downturn. Unfortunately, some customers are feeling the financial effects of the furloughs and job losses and are turning to friendly fraud.

This type of fraud is a growing issue, since 50% of customers that commit friendly fraud will do so again within 60 days of a successful claim, and the average person that commits friendly fraud will perpetrate nine separate incidents. Retailers must prepare to challenge this type of fraud or they run the risk of being targeted multiple times.

What can be done?

Retailers must first mend internal processes that contribute to genuine chargebacks. Keeping clear records of pre- and post-transaction data will help spot any issues that are taking place during the purchase journey.

Following this, they should implement strong multi-layered fraud prevention and authentication processes to rule out instances of criminal fraud that cause chargebacks. Once this is done, businesses can then wean out instances of friendly fraud. 

However, identifying true friendly fraud is one of the most difficult parts of the mitigation process. We recommend that those struggling should integrate a third-party solution. From our own research, we’ve found that retailers that use such solutions have an overall win rate almost a fifth greater than those who dispute chargebacks in-house.

For retailers that want to feel the benefits of online retail in 2021 and not just the risks, integrating chargeback management into their long-term planning will go a long way towards boosting bottom lines and protecting revenue streams.

With recovery on the horizon, we predict significant innovation on the high-street of 2021, making up for lost ground in 2020.

To find out more about Chargebacks 911 and the services they provide to the retail industry, click here.

This article was also published in The Retailer, our quarterly online magazine providing thought-leading insights from BRC experts and Associate Members.