
pride, prejudice and liabilities
The Intricacies of Online Retail SecurityOnline
retail is a rapidly growing market, expected to reach a stunning USD 27
trillion in 2020 worldwide. However, with the increase in the size and volume
of online transactions come certain risks and one of the biggest risks for
merchants is chargeback.
Friendly fraud
All small and medium businesses that accept
credit cards know what chargebacks are. Even though they can be painful for
smaller businesses, chargebacks can be decreased and even prevented. In 2017, Global Risk Technology study
discovered that 81% of all
chargebacks are probable cases of friendly fraud.
Even though there is no precise definition of friendly fraud, it usually occurs when a consumer asks for a chargeback or refund, for something they purchased but maybe forgot about it, or aren’t aware that a family member, often a child bought something with the card.
Over the course of the past several years, there
has also been an increase in complaints from customers who had made orders from
online retailers (often based in China),
paid for them but then never received their order.
While any retailer is, of course, limited in the ways they can deliver their goods to customers, undelivered goods will always be a much bigger problem for SMEs than big retailers.
Unfortunately,
apart from creating their own delivery service (such as Amazon), SMEs are
limited to already existing options – their domestic postal services or
international shipping companies.

3DS to the Rescue
The introduction of VISA-developed 3D
Secure - a security protocol that verifies payments via SMS or password before
an online purchase can be completed - was hailed as a major step forward in
payments security and has motivated other card issuers to create their own
protocols: Mastercard's SecureCode,
Amex's SafeKey, etc.
3DS has significantly reduced merchant losses resulting from fraudulent chargebacks, since customers can no longer deny they had made the purchase precisely because of the verification step involved. Experts have noted that merchants can expect up to 80% reduction in fraudulent chargeback when employing 3DS and consequently a reduction in resources allocated to disputes management and various associated fees.
Other notable benefits include
cardholders being more inclined to engage in high value transactions and
merchants being able to capture higher risk rating customers.
So How Do You Fight Chargebacks?
Or better yet, since some are inevitable,
how do you reduce the number of chargebacks you incur? Your best bet is to tackle them before they become an issue.
You want to stop them before they become chargebacks, essentially. That is why
it’s important to track your data to see where your fraud protection works and
where it needs to improve.

A fraud department can do its part here. Since they can monitor transactions of both issuers and acquirers, they can detect and quickly react if there is any malfeasance and they can also block cards at the bank when a chargeback is triggered. The guiding principle here is sound: if there is a written document detailing the transaction, both parties are protected from fraud and mutual satisfaction is guaranteed.
However, the number one piece of advice that Pullen and Fergerson
offered was to embrace automation. As processing time shrinks, pulling together
the necessary information via manual efforts simply won’t be practical.