Tal Yeshanov, head of risk and strategic financial operations at Plastiq, said the term “friendly fraud” is a pleasant way of masking over a growing problem that’s causing real pain for merchants, issuers and acquirers.
“It’s a misnomer — there’s nothing friendly about friendly fraud or chargebacks,” she told PYMNTS. “It’s actually straight-up abuse.”
Confusion is part of the picture — tied to uncertainty about what a consumer bought, from which merchant, when or where. In terms of the mechanics, the cardholder disputes a charge illegitimately.
As Yeshanov explained, it’s a charge that they should be paying, but for whatever reason are abusing the system and claiming they shouldn’t be paying at all. Disputes follow, and friendly fraud, she said, has affected more than 90% of enterprises.
For the merchant, with advanced technologies at the ready, evidence is the best defense against that friendly fraud — and that evidence, she said, can come in the form of an IP address, a device ID or device fingerprint or Account ID.
“The merchant can capture the data related to the cardholder and prove that the cardholder has in fact ‘existed’ on their platform,” Yeshanov explained. That existing cardholder can also be proven to be the same person who has made the transaction, thus establishing whether an existing customer is abusing the system.
For example, if a merchant uses the same device and the same delivery address/login, the merchant will likely be successful in proving friendly fraud has occurred.
See also: Retailers Brace for Friendly Fraud’s New Seasonal Surges
The conversation came against the backdrop where in late June, Visa announced improvements to its “Take a Bite out of Friendly Fraud/First Party Misuse” initiative.
Under the changes, IP address, device ID or fingerprint, shipping address and account log-in ID must be collected for transactions so they may be presented as evidence to remedy a fraud dispute. The acquirer and merchant must capture the data related to the cardholder and ensure the IP address is that of the consumer, not that of the merchant.
“These conversations will be instrumental in helping merchants have conversations with issuing banks, as well as payments processors,” Yeshanov predicted.
Merchants can also take a proactive approach to fraud prevention, she told PYMNTS, by “speaking up and explaining to their issuers, their payment processors, their acquirers” their specific refund policies.
Leveraging advanced technologies in the fight against friendly fraud is an approach that allows for the nuances in eCommerce, she said. For example, the growing use of mobile phones to transact means that IP addresses change, depending on where the consumer is.
Read more: Spike in Friendly Fraud Triggers Review of Chargeback Mechanisms
The aforementioned actions by Visa mean that triangulating data — the shipping address and IP data — can explain some of them. Elsewhere, she noted that Visa’s infrastructure and application programming interfaces (APIs) can help streamline the document flow that is part of the dispute.
Merchants can leverage vendors such as Verifi and use products such as “Order Insight,” which allows data (from merchants) to be shared with the issuing bank to enable the merchant to attempt to resolve the chargeback disputes in a more streamlined fashion.
A Collective Approach
The collective systems (and not humans) enter and track the relevant data, which helps all stakeholders gain insight into a transaction, from consumers to merchants to financial services providers to payment networks.
It will take time to harness and leverage the wealth of data that can stop illegitimate disputes and chargebacks in their tracks. Merchants, she said, will learn to populate the “fields” necessary in their documentation, such as device ID fingerprints and other information. Issuers have different protocols, and in the months and years ahead, we’ll see an evolution of strategies versus friendly fraud.
“Everyone winds up being on the same page,” she said, “and this is a way to combat friendly fraud in an automated and scalable way.”
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