• Sun. Jun 16th, 2024

Monica Eaton of Chargebacks911 Explores Bank Fraud and More

As the world continues into layoff season, there are several indicators that automated processes will continue to play a huge role in payments and confirmations across the board.

One particular problem that has plagued the sector is chargeback fraud.


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The fallout of chargeback cases affects everyone-consumers, merchants, payment processors, financial institutions, and even the government.

While chargeback attacks are mainly low-level, the impact is much higher than imagined.

How can chargeback fraud be countered?

In what ways do fraudsters get access to personal information?


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What are the best methods of chargeback fraud deterrence?

Monica Eaton, co-founder and COO at Chargebacks911 explained this to us and more.

Here’s your inside scoop!

Monica Eaton, Co-Founder at Chargebacks911

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What do you think is responsible for the increase in fraud claims?

There are a myriad of factors that play into the increase in fraudulent chargeback claims. One factor is that over the last few years especially, eCommerce has exploded. With more online and card-not-present transactions, there is an associated rise in chargeback claims, many of which are fraudulent or illegitimate. Another factor is that using chargebacks as a scheme to get a product and keep the money is becoming more popular among malicious
consumers.

In addition to what is happening, it’s also important to note what is not happening. What’s not happening is that issuing banks and regulatory agencies are slow to adjust their chargeback processes in response to the increase in fraudulent claims. At the expense of the merchant, many financial institutions make it very easy to file a chargeback; so easy that many consumers will resort to filing a chargeback with their bank rather than contacting the merchant for a refund, which would save the merchant a significant amount of time and money.

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Why have banks gotten stricter with chargeback claims?

While some may argue that banks could be doing more, financial institutions have gotten stricter with chargeback claims because it has become apparent that the scales need to be balanced between merchant and consumer. Today’s
chargeback landscape gives the benefit of doubt to the customer and allconsequences to the retailer. Banks are also taking note of the staggering rise in chargeback fraud and abuse. Currently, we see that about 60% of chargeback
claims are potentially illegitimate claims, although merchants only win a small fraction of representment cases. This equates to billions of dollars in revenue being lost by merchants unnecessarily, which is ultimately passed on to
consumers through price increases.

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How did fraudulent financial activities explode during the COVID-19 pandemic?

During the pandemic and the closing of brick-and-mortar locations, we saw a huge shift to eCommerce and card-not-present transactions, which can pose higher risks of fraud when compared to in-person sales.

According to the U.S. Census Bureau, eCommerce sales increased by $244.2 billion, or 43%, in 2020, the first year of the pandemic, rising from $571.2 billion in 2019 to $815.4 billion in 2020. With this drastic increase in online shopping comes an associated rise in fraudulent activity, including an increase
in email scams, payment information theft and chargeback fraud, among others.

With such a drastic shift in the way people are shopping, it’s difficult for businesses to catch up to and prevent new fraud tactics.

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Has the explosion of fraudulent activities abated, or have they increased?

Fraudulent activity has always been on the rise, and even more so given how the pandemic forced more people to shop online than ever before. More often than not, new fraud tactics must emerge before measures can be put into place to identify and prevent them, so it’s a proverbial game of catch-up for
merchants fighting fraud. It’s also important to remember that scammers are constantly developing new ways to steal information from consumers and businesses. While emails from Nigerian princes promising untold riches may have decreased, today we see massive data breaches from fraudsters who can retrieve millions of consumers’ sensitive information at once. These new scams are more targeted and more destructive than those of yesteryear.

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What is the effect of chargeback fraud across financial value chains?

Chargeback fraud causes a business to lose unnecessary revenue, and when that happens, merchants can either absorb that cost, increase prices, or cut costs along a product’s value chain to recoup income. However, often, when a merchant dials back any part of their value chain—whether it be operations,
shipping, or customer service—they decrease the value of their product overall.

For instance, if a company decides to use cheaper materials used to create their product, the value of their product decreases. If a business decides to save money by spending less on marketing, less people may hear about their product and decrease sales. Deciding which component of the value chain should be
scaled back depends entirely on the business and product, but the bottom line is that you’ll either have a cheaper product for the same price, or a higher-priced product with no increase in value.

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What kinds of technologies have banks deployed to deal with chargeback fraud?

There have been several measures deployed to deal with chargeback fraud in the banking sector, but the technology that has made the most impact are tools that allow banks and businesses to share chargeback and fraud data in realtime. These data-sharing technologies—such as Mastercard’s Ethoca or
Mastercom programs—allow banks and businesses to formulate accurate pictures of current chargeback fraud trends and the various red flags associated with them. This increased communication can also help merchants and financial institutions resolve a dispute before it officially becomes a chargeback, saving
businesses on average $3.75 for every dollar lost to an illegitimate chargeback
claim.

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Please, can you tell us about Fi911 and Chargebacks911? How do they work?

Chargebacks911 provides custom solutions for merchants throughout the transaction process to help prevent and mitigate fraudulent and illegitimate chargebacks. Chargebacks911 addresses chargebacks both during and after a transaction. The tailored, proprietary technology used by merchants can send
alerts of an incoming chargeback before it’s officially filed and can help to provide evidence during the representment phase of the chargeback process to help fight back against fraudulent or illegitimate chargebacks, recoup lost revenue for businesses, and improve revenue retention using data-driven technology to help ensure sustainable growth for every member of the payment channel.

Chargebacks911’s category experience and patented Intelligence Source Detection (ISD™) technology identifies the true source of chargebacks, automatically remediates fraudulently filed disputes, safeguards reputations, monitors feedback 24/7 and provides insight to proactively prevent future fraud. Fi911 works very similar to Chargebacks911’s products and services but tailored to banks and financial institutions rather than merchants. Fi911 supports financial institutions with innovative back-office automation technologies created specifically for banking and financial institutions. By supporting direct communications between FIs and their ecosystems, the company’s scalable payment product suite offers features that range from fast, flexible merchant onboarding to highly transparent and feature-rich client portals.

Fi911’s proprietary DisputeLab™ helps resolve chargeback disputes faster and more efficiently by utilizing next-generation technology that leverages a robust rule engine and highly scalable microservices specifically designed to optimize each step in the dispute cycle. The company’s unified platform also provides threat detection, reconciliation, risk management tools, and the ability to generate commissions and ISO pay-outs directly through the system.

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What role does data play in preventing chargeback fraud?

Data plays a critical role in how we address and prevent chargeback fraud, all the way from fraud detection to chargeback representment. For example, comparing data like billing, shipping and IP addresses can help determine if a purchase was made by the cardholder, as fraudulent purchases will likely lead to a chargeback claim. Another instance is collecting data from a merchant and their payment processor to help build a case for representment if a chargeback is fraudulent or illegitimate.

Data also helps with creating automated chargeback alert, prevention and dispute systems and processes. The more data we can use to guide our technology, the more accurate we can be in our automated
technology, which saves merchants time and money.

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What is remediation technology, and how does it work?

In terms of chargebacks, remediation technology is any tool used to fight back against any fraudulent or illegitimate chargeback claim. The goal behind remediation technology is to help merchants replace inefficient, reactive risk management solutions with dynamic, proactive strategies in order to retain more revenue. Our remediation technology consists of communications platforms that work between merchants and financial institutions to help prevent or argue unfounded chargeback claims all in one place, ideally before a claim is filed.

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Are there any AI components to Fi911 and Chargebacks911? How do they work?

As a result of the mammoth quantity of chargeback data that online merchants receive, the time it takes for a human operator to investigate each chargeback and determine whether it is legitimate or not is an incredibly daunting task.

Because of the amount of data, a single person must sift through, most chargeback cases expire.

Because the industry needs to adopt more intelligent automation to meet this challenge, Chargebacks911 is using AI to revolutionize the data-collection process, transforming the concept of end-to-end automation by digitizing even the most complex and unstructured formats to maximize data insights and
leverage rule-based data driven automation. In short, automation of data can save businesses time and money.

The use of data from a consortium of businesses across a number of verticals enables our technology to be “trained.” It can dynamically identify data points related to post-transaction fraud, including first-party fraud. This is then enriched to improve underlying dispute intelligence and insights for merchants,
continuously learning from the merchant it’s serving.

Related: Finance with Artificial Intelligence

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Why do you think banks have increased the number of initiated chargebacks?

I don’t think it’s necessarily the banks that are increasing the number of chargebacks, but I do believe that banks can be doing more to prevent first-party chargeback fraud and misuse before it happens, which could greatly reduce this number. As eCommerce continues to grow, so will fraudulent activity and, subsequently, chargebacks.

However, banks should recognize that fraudulent chargebacks filed by malicious consumers are rising at an alarming
rate. First-party fraud costs the eCommerce industry billions of dollars each year, accounting for up to 25% of some merchants’ profits. The issue is that first-party fraud is only getting worse. Post-transaction fraud in general surged
by 23% in 2021, but first-party fraud surged 56% during the same period, making it one of the fastest-growing threats to merchants today.

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What is the dispute process that vendors must go through before chargebacks get reversed?

The dispute process for getting a chargeback reversed, also known as representment, is an arduous process that often favors the consumer. If a chargeback is filed by a consumer with their issuing bank, it is up to the merchant to prove that the transaction was legitimate. This involves gathering and presenting evidence under time limits. The merchant’s time frame for response can vary widely based on the card network and other factors.

Merchants will have 30 days to respond to each phase when dealing with Visa or Discover chargebacks. For Mastercard, the time limit is 45 days per phase, and with American Express, the response time frame is only 20 days per phase.

To win a chargeback representment, you’ll need to provide what banks call “compelling evidence.” Again, acceptable evidence can vary a lot based on the bank, card network, and reason code. Common examples of compelling
evidence include copies of the sales receipt and/or order forms, tracking numbers and proof of delivery, or any communications indicating successful delivery or customer satisfaction, among other things.

Remember: all evidence must be in response to the given reason/reason code, even if you believe that reason to be false.

Along with the documents supporting your case, you must submit a formal outline of the case called a chargeback rebuttal letter. This should include a summary of your evidence and show how it collectively proves the transaction is
valid.

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How do bank-initiated chargebacks increase consumer costs?

As a business, any time you have an expense, you have two options: accept that expense as a cost of doing business or pass the expense on to your customers through price increases. Throughout 2022, merchants faced supply chain issues and staggering inflation, both of which significantly reduced profit margins. Combining these issues with the rise in fraudulent and illegitimate chargebacks have left many retailers with no choice but to make up for lost revenue by increasing the prices of their products or services. This makes it even more important that banks and businesses work together to combat the rise in erroneous chargeback claims. Without mitigating revenue lost to
chargebacks, you could start to see prices rise across all industries doing
business online.

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How do Fi911 and Chargebacks911 increase the chances of successful transactions for both vendors and customers?

While Chargebacks911 and Fi911 primarily address post-transaction issues, we do advise clients on their customer service processes to reduce any unnecessary friction throughout a transaction dispute that may prompt a customer to file a chargeback with their bank rather than resolve the issue with the merchant. For instance, if a merchant’s website has a confusing return policy, or their customer support contact information is slow to respond or outdated,
consumers will opt to file a chargeback instead. Banks have made it incredibly easy to file chargebacks, so retailers need to make sure it is just as simple to dispute a transaction through them.

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What role does timely feedback play in the chargeback process?

Timeliness is a major factor in fighting back against erroneous chargebacks.

Different credit card companies have different time frames to dispute chargebacks, so it’s important to have those deadlines on hand. Once a deadline passes, the temporary credit provided to the consumer then becomes
permanent.

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How are cybercriminals evolving ways and means to counter anti-chargeback
technologies? What steps can be taken to be many steps ahead of them?

This is the constant, ever-elusive question we continuously ask ourselves when we develop new products and features. The truth is most of these “cybercriminals” aren’t sophisticated scammers capable of bypassing our anti-
chargeback technologies. Most are customers who are either filing a chargeback as their first or only step in disputing a transaction, or they are looking to get a purchased product for free, which is known as friendly fraud. What is evolving are alternative methods of payment, such as buy now, pay later (BNPL)
programs or eWallets. With each emerging payment method comes new ways for those methods to be exploited, so as a chargeback prevention and management company, we must constantly brush up on emerging payment
technology and identify any potential vulnerabilities.

To stay ahead of emerging trends in chargeback fraud, in addition to rigorous research and client surveys, we advocate for regular communication between ourselves, businesses and banks. We can then take what we learn and
implement that into our machine-learning software to help better identify and prevent fraudulent chargeback activity.

Related: How Do Scammers Entice Their Prey?

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What steps can consumers take to protect themselves from fraud?

Some steps consumers can take to protect themselves from fraud include:

Confirming the seller is legitimate. Do your research on companies that you are purchasing from for the first time and ensure the URL you are purchasing from is legitimate and secure. Some fake websites will have URLs that are very
similar to legitimate businesses, but may have one letter changed, added, or missing. Make sure the URL has “https” in the web address, which lets the consumer know that site’s server is secure.

Being careful how you pay. Never wire money to a company or seller or pay for an item using pre-paid gift cards. Use a credit card when shopping and be sure to continuously monitor your purchasing statements for suspicious activity.
If you see a fraudulent transaction, contact your credit card company immediately.

Tracking your shipped item. Make sure you are aware of the shipping process before purchasing an item. Make sure every item purchased online has a tracking number so you can monitor the shipping and delivery schedule.
Legitimate websites will typically provide these tracking numbers after the transaction.

Being wary of phishing attempts. Avoid clicking any suspicious links or attachments in emails, on websites or social media. Some links will prompt you to give up sensitive information or may contain malware. Never update your
account password or information through an email link. Always be sure to update any account information through the actual website itself.

Calling your credit card company. In the event you suspect any fraudulent activity, contact your credit card company immediately.

E-Crypto News:

What steps can vendors take to protect themselves and their customers from
fraud?

Aside from implementing automated fraud detection systems, merchants can brush up on the warning signs that a transaction may be fraudulent. These warning signs include but are not limited to:

Repetitive Orders: Merchants who receive orders with many of the same item but in different colors or sizes, make sure to keep an eye on this transaction.

Scammers often purchase multiples of the same item to resell later Different Cards, Same Shipping Address: Typically, scammers will buy stolen cardholder information in bulk from hackers following a data breach.
Multiple orders with mismatched payment information but the same shipping address could signify that a thief is attempting to quickly purchase an item using a collection of stolen cardholder information while the cards are still active.

Reattempting a Declined Purchase With a Smaller Amount: When an order is flagged as potential fraud and declined, a scammer may try to buy another item that costs less in an attempt to identify the limit and available
balance of a stolen account. This is another form of card testing and should be noted as extremely suspicious activity.

Guessing the Expiration Date: Most card-not-present purchases require an expiration date for the credit card being used. If the date entered first is wrong and the customer tries again with a new one, there’s a chance the buyer doesn’t have access to the physical card, a good sign that the card information is in the hands of a thief. The scammer may be simply entering junk information or is trying to guess the expiration date. Either way, this attempted transaction should be looked at with much suspicion.

Problems Supplying Personal Information: If an order is being placed over the phone, customers who have trouble supplying personal information may not be the cardholder at all. Credit card owners shouldn’t find it difficult to provide personal details, such as billing and shipping addresses.

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How can improved regulations help reduce chargeback and online banking
fraud?

The most meaningful improvement we can make to regulation is to impose protections on behalf of merchants suffering from first-party fraud. Currently, most government mandates concerning business practices are aimed at protecting consumers but fail to consider the unfortunate and exploding trend of first-party chargeback fraud, which merchants consider to be the most prevalent form of fraud they face. Most of the time, malicious consumers get away with chargeback fraud.

Even if a fraudulent chargeback is prevented, there’s no recourse to ensure the habitual offender won’t do it again. Regulation needs to adapt to further protect merchants just as much as consumers.

E-Crypto News:

How will emerging technologies like blockchain technology help prevent chargeback fraud?

Blockchain technology makes it much easier to detect suspicious behaviors because the recorded data is shared in real-time. Data is updated and requires the approval of all parties who have access to the data, making it much more difficult for scammers to infiltrate a transaction that uses blockchain technology.

Transactions made with blockchain technology, such as those using cryptocurrencies, are not subject to the requirements imposed on credit transactions under the Fair Credit Billing Act and are not subject to the chargeback rules created in response to the law. Without chargebacks in blockchain, there can’t be chargeback fraud.

Related: 5 Major Fintech Developments That Will Drive 2023’s Finance Industry

About Monica Eaton

Monica Eaton is the Founder of Chargebacks911. Chargebacks911 is the global leader in chargeback prevention and remediation technology. As a provider or supplier to financial technology companies, Chargebacks911 helps safeguard more than 2.4 billion transactions per year on behalf of clients in 87 countries around the world. For details on Chargebacks911’s comprehensive dispute management solutions, visit https://chargebacks911.com .

About Fi911

Fi911 was launched by Chargebacks911 to support financial institutions with innovative
dispute life-cycle and merchant life-cycle management technologies. Its proprietary
DisputeLab™ makes resolving chargeback disputes faster and more efficient by optimizing
each step in the dispute cycle. Visit https://fi911.com


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Kevin Moore - E-Crypto News Editor

Kevin Moore - E-Crypto News Editor

Kevin Moore is the main author and editor for E-Crypto News.