August 23, 2016
While merchants and issuing banks often are adversarial in the chargeback process, a new report from Aite Group suggests more collaboration between the two groups would benefit both sides. The report said such collaboration also would help with the growing problem of declining legitimate transactions in an effort to prevent fraud. The report, Chargebacks and False Declines: Cards’ Ugly Underbelly , does not focus exclusively on those problems in the card-not-present space, but they are significant problems for CNP merchants.
The report estimates chargebacks will surge in the U.S. this year (marked by a 25 percent spike in the first half of 2016 due to the EMV liability shift) to $5.8 billion and that 60 to 70 percent are the result of fraud, with the rest originating as service or support disputes. Aite contends that merchants, issuers and consumers are all gaming the chargeback system and, despite some efforts by the card networks to streamline the process coming next year, collaboration is key to reducing these numbers.
Aite estimates that U.S. issuers will decline $264 million in legitimate transactions this year—a number that will rise 25 percent to $331 million in the next two years. The report acknowledged that false declines also stem from card-not-present merchants employing fraud-prevention technology with parameters that might be a little too stringent, identifying some legitimate transactions as fraudulent.
Aite’s Research Director for Retail Banking Julie Conroy, the report’s author, details how collaboration providing more visibility into chargebacks and false declines could be a boon for both merchants and issuers.
“Collaboration is vitally important in addressing the challenges of fraud, false declines, and chargebacks, because merchants and issuers have unique perspectives on each transaction and their relationship with the consumer,” Conroy said. “Issuers have insight into a customer’s purchase behavior across multiple merchants, know whether the card used has been exposed to a data breach, and see fraudulent behavior and chargebacks that the merchant never sees (e.g., lost/stolen fraud or transactions riding the 3-D Secure rails). Merchants have data about the customer’s behavior while shopping, the longevity of their relationship with the customer, and the type of goods purchased. Making a decision about transactional and customer risk without a means of data sharing is akin to putting together a puzzle blindfolded while also missing many of the puzzle pieces.”