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Chargebacks: 5 Ways Online Retailers Fail to Address Them

  • By Andrew Deichler
  • Published: 4/5/2016

COPENHAGEN, Denmark -- Chargebacks dominated discussion during a panel session on card-not-present (CNP) fraud Tuesday morning at the Money20/20 Europe conference. Chargeback or “friendly” fraud, which involves a customer making an online purchase from a retailer and then requesting a refund from the bank, has become a major problem for merchants in Europe .

Statistics show that in the United States alone, if a cardholder gets away with a friendly fraud chargeback filed under Reason Code 83 , it is extremely likely that they will attempt another one within the next 90 days.

Five chargeback failures that need to be addressed

Online FraudMonica Eaton-Cardone, CIO and co-founder of Global Risk Technologies, a provider of chargeback remediation services, noted that of all the fraud types that online merchants face, technology has failed to address friendly fraud. Furthermore, she said, in Europe, merchants are not taking responsibility to fight friendly fraud. “We’re trying to put responsibility on the issuer, then the acquirer and then the cardholder,” she said. “But merchants aren’t defending themselves, either. There’s just a lack of education on how you can be held accountable for your part in solving this problem.”

Eaton-Cardone noted more feedback from the retailer to the issuer would be a big step in resolving the issue . “If you have response data back that said, ‘Here’s a card holder, and this isn’t actual fraud. It was an accidental chargeback,’ then you’re going to be able to run your rules more effectively,” she said. “But this isn’t actually happening, even despite the fines that Visa and MasterCard have imposed as an incentive to get these merchants to fight fraud.”

Catherine Moore, managing director and President of J.P. Morgan Commerce Solutions, agreed that more collaboration between stakeholders is needed . She noted that regulators have been stepping in on this front recently because they generally feel that retailers and issuers haven’t been doing enough. “We could at least be having more collaboration and more cooperation, rather than just pushing back. We need to be engaging better,” she said.

Nicolas Raffin, head of strategic marketing and innovation for Oberthur Technologies said that he has observed that banks fail to understand how much chargeback fraud really costs. “Many banks have apparently not done nearly enough to measure the fraud impact,” he said, noting that some banks actually claim not to have any chargeback fraud at all because the costs have been pushed back to the merchants.
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