As featured in PYMNTS, Nov. 5, 2019
While there is little good to be said about criminal fraudsters who plague merchants by stealing credentials to snag goods with absolutely no intention of ever paying for them, they at least have the merit of being a fairly homogeneous group in terms of intention. The goal is to steal as much and as often as they possibly can. Fraud is their profession.
Friendly fraud, on the other hand, is a much more amorphous and heterogenous area than its criminal counterpart,Kount CEO Brad Wiskirchen told Karen Webster in a recent conversation, one that makes it much harder for merchants to spot, let alone fight.
“Friendly fraud is the biggest misnomer in all the businesses, because there is nothing friendly about any type of fraud. No matter what you label it as, the merchant faces costs, loss and brand damage. Plus, not every friendly fraudster behaves the same way,” he said.
Some have motives and intentions that more clearly match those of criminals, he added. There are all kinds of customers who have built designer shoe collections they didn’t actually pay for because they believed their favorite luxury retailers wouldn’t fight a chargeback if they pretended they never got the shoes. Others who commit friendly fraud have no ill-intention in mind at all. They have a spouse who bought them a birthday present, so they didn’t recognize a charge. Maybe their roommate stuck a delivery on top of the fridge and forgot to mention it, or their teenager figured out their relevant card numbers and passwords, then went on a digital buying spree. The person disputing the charge is honestly reporting a fraud claim — it’s just that they are also honestly mistaken.
These types of fraud aren’t rare one-offs. They can represent 40 percent to 80 percent of a merchant’s losses to fraud in total, depending on what they sell and to whom they sell.
The challenge, Wiskirchen told Webster, is that while tactics at spotting criminal fraudsters have been refined and enhanced, progress against friendly fraudsters has been much slower. That means merchants are more likely to simply eat the costs of the illegitimate chargebacks because proving their illegitimacy is incredibly difficult.
Spotting The Friendly Fraudsters And Pushing Back On Bad Chargebacks
Giving merchants a better tool to fight this not-so-friendly, pernicious fraud is about managing and controlling chargebacks, Wiskirchen said — which, in the past, meant increasing their cost of doing business on a number of levels. When Kount’s Friendly Fraud Prevention Solution was being developed, a key component was building it to integrate directly into Visa Merchant Purchase Inquiry (VMPI) to give merchants easy access to a component of Visa’s Claim Resolutions process. Doing so helps merchants stop a chargeback before it progresses, preventing many chargebacks and reducing dispute time frames.
When a business uses VMPI, cardholders who call to initiate a chargeback are provided with more information about the transaction to help them recognize the purchase. That dialogue and subtle friction cause the majority of cardholders to halt the process.
Wiskirchen noted that businesses need to have criminal fraud under control before they can effectively address friendly fraud. Kount’s AI helps companies prevent criminal fraud, but advanced analytics also enable a business to spot trends and track records with consumers who may be repeatedly committing friendly fraud. That data can be key if a merchant chooses to pursue the chargeback representment process.
Either way, merchants are presented with the information, and can decide how to proceed, instead of being on the hook for a chargeback for which they, by rights, ought not to be on the hook.
The Power Of Control
The solution will continue to be refined, Wiskirchen told Webster, and the results are, so far, strong enough to be meaningful: Merchants that use these tool quickly see their friendly fraud rates fall. Moreover, he noted, friendly fraudsters with malign intent — as opposed to the parent whose kid has gotten hold of their credit card — are, more or less, scared off and don’t come back.
If the point is to build a collection of free designer shoes, there is no real benefit in fighting a merchant that it is willing to bring data to the table, and fight the chargeback, rather than just resign and give up on the goods. Better to just move on.