Fraud Rising Dramatically
Both chargebacks and "friendly fraud" are rising at dramatic rates.
According to the 2016 LexisNexis True Cost of Fraud Study, the average number of monthly fraud attempts has increased 33 percent in the past year alone, with just under half (46%) getting past merchants’ existing fraud mitigation efforts.
As you might imagine, the result is an increase in the percent of revenues lost to fraud, up 11% over the last year – largely attributed to remote channels, the primary driver of fraud increases. Remote channel merchants experience fraud 3-4 times more than point-of-sale (POS)-only retailers. On average, US merchants reported an 8% increase in the cost per dollar of fraud losses – meaning that for every dollar of losses, merchants are losing $2.40 based on chargebacks, fees and merchandise replacement. Furthermore, the number of “successful” fraudulent transactions more than doubled from 2012 to 2016, increasing from 80 to 206 per month.
Monica Eaton-Cardone, co-founder and Chief Operating Officer of Chargebacks911, explains that today’s age of “instant gratification, immediate satisfaction and zero percent liability” is fueling chargeback increases – it is a case of customer-gone-wild, unbalancing control from companies while simultaneously fostering “consumer entitlement”:
“Yesterday’s consumer would never think of complaining about taking a few extra seconds in the checkout aisle, not being able to return a product that was used or worn, or considering that their bank needed to resolve a transaction issue because the retailer was not open to take their call at 2 a.m. on a Sunday,” said Eaton-Cardone. (3)
Eaton-Cardone suggests that today’s consumers are savvy enough to exploit loopholes, and merchants must act quickly to implement the proper approach to stop chargeback fraud among consumers who, studies show, often repeat their wrongdoings. Eaton-Cardone urges merchants to strike a balance between providing the best service possible while also mitigating risk through establishment of customer service standards that hold a brand intact, yet are consumer friendly.
“50 percent of the cardholders who file a friendly fraud chargeback and get away with it will do it again within 90 days; it’s imperative that merchants put a plan in place to guard against future disputes,” says Eaton-Cardone. “But an overzealous chargeback management strategy could negatively impact customers and reduce the chance of future sales.”