December 17, 2015By Frederick Felman, CMO, Recurly The holiday season is upon us and retail sales are already booming. In fact, after Black Friday and Thanksgiving weekend, retail sales reached $1.73 billion online —a 22 percent increase compared to the same period in 2014. Sadly, some of these purchases, though kept, cherished and loved, won’t be paid for in 2016. Along with spikes in holiday shopping come spikes in credit card chargebacks. Some chargebacks stem from legitimate returns—the sweater that didn’t fit or the loved one who changed her mind about her wish list. But, other chargebacks are the result of fraudsters who take advantage of the high levels of online credit card purchase activity to defraud retailers. Global losses due to fraud in 2014 reached $16.3 billion on total sales of $28.8 trillion, according to the Nilson Report. Furthermore, these figures only reflect losses from the unauthorized transactions—They don’t include the fees, interest and other penalties associated with chargebacks. To add more coal to retailers’ stockings this year, experts also predict an increase in card-not-present (CNP) fraud as the introduction of new EMV cards makes card-present fraud more difficult. While EMV cards, because of their embedded microchip and associated security features, are more resistant to fraud at the point of sale, nefarious types shift their efforts to CNP fraud. What can retailers do? There are several strategies retailers can implement to keep credit card chargeback fraud from ruining the holiday season. [hide for=”!logged”] Addressing Friendly Fraud One best practice is to have as much customer information as possible readily available, including confirmation of both product purchase and delivery, making it harder to dispute receipt of goods. For example, if you have proof that a customer received an order—like a confirmation delivery receipt—then you can better understand if this is a legitimate claim for a credit card chargeback. “Warm lists” of customers who have claimed non-receipt of goods or damaged goods on multiple occasions is another useful strategy. In most cases, a customer who makes these kinds of claims more than once in a three-month period is not a profitable customer. Unfortunately, merchants who don’t work to combat this type of “friendly fraud” simply encourage more of it and provide no incentives for banks to investigate such claims. Dealing with Not-So-Friendly Fraud In terms of fraud perpetrated by those who are not the legitimate credit card holder, there are a number of warning signs.
- Be wary of expedited shipping when billing and shipping addresses differ
- Make sure IP location and credit card address match up
- Always require the credit card’s security code
- Ship your orders using tracking numbers and require signatures
- Make sure your systems and services are PCI-compliant
- Consider using the services of a company that offers fraud-prevention technology and services