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Merchants are Encouraging Friendly Fraud

Posted on 11.17.2013

Friendly fraud, initiated by online shoppers in card-not-present (CNP) transactions, threatens the future of online retailers. And Internet retailers are encouraging the behavior.

That’s a pretty bold statement, but according to LexisNexis data, merchants are incurring a $279 loss for every $100 of fraud losses – the most since 2010. The risk-solutions company attributes the increase in part to the growth in fraud activity through online channels, already the most expensive channel due to costs associated with fees and interest owed to financial institutions, charge-backs and other replacement costs.

Merchants concerned about chargebacks (and who wouldn't be) should look in the mirror for a cultprit. The SecureBuy Magento 2013 Fraud Report stated that nearly 50 percent of all chargeback requests are left unanswered. 

Monica Eaton-Cardone, co-founder of Chargebacks911, deemed the research findings “unsurprising” and said that inaction by merchants is the driving force behind increasing friendly fraud incidents.

“The chargeback process largely favors consumers, and many merchants are failing to take even the most basic precautions against chargebacks and friendly fraud,” said Eaton-Cardone.  “But what they must realize is that too many chargebacks could result in fines and a loss of potential business, as well as the inability to continue to accept credit cards.”

Eaton-Cardone stated that retailers can limit friendly fraud by heeding the following advice:

1. Respond to every chargeback case. Engage in more communication and handle resolutions as quickly as possible.

2. Require a signature upon delivery of goods.  The signature helps relieve merchants of any wrongdoing in the resolution of chargeback disputes.

3. Keep customer records and account history.  This serves to track suspicious customer activity and lowers the risk of accumulating chargebacks.

“Online retailers must realize that being proactive is a requirement, not an option—it is up to them to protect their businesses and keep them thriving,” said Eaton-Cardone.  “Because consumers often win chargeback cases [due to no response from merchants], merchants have to enact measures that evidence responsible business practices.”

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