As the holiday shopping season kicks into high gear amid an unprecedented pandemic-era surge in online shopping, banks and merchants are bracing for an associated spike in fraud, disputes and chargebacks.
It’s a costly and time-consuming problem that stresses out merchants and customers alike, but it’s also one that experts like Ethoca’s Keith Briscoe say is frequently avoidable.
“The way to solve for it is data,” Briscoe, Ethoca’s chief marketing and product officer, said in an interview with PYMNTS. “Clarity provided in the moment to the consumer is by far the best way to combat the problem.”
By clarity, Briscoe said he means providing a concerned customer with basic information regarding the transaction in question, whether that’s a detailed merchant name, a logo or a full receipt. If that can happen within a banking app, all the better.
“Our big belief here is that by providing clarity in that moment — that key moment where a cardholder needs the detail about a transaction they performed — we're [happy] to provide it,” he said.
Briscoe said that when presented with such data, consumers are usually able to see whether the charge is valid or not, avoiding filing an erroneous fraud claim that later becomes a dispute and chargeback.
“The further upstream we can push that kind of clarifying information, the more we can take all of that unnecessary dispute noise out of the ecosystem,” he said.
After all, if a charge is legitimate rather than fraudulent, no consumer wants to go through the friction and disruption of canceling and reissuing their card — and merchants don’t want the hassles, either.
Fighting Friendly Fraud
While the term “friendly fraud” exists in the payments industry, Briscoe said that in many instances, such cases are either not friendly or not fraudulent.
He pointed to a broad range of behaviors that might fall into that category, such as consumers simply not recognizing transactions that their cards were legitimately used for.
“It can also delve into areas like buyer's remorse,” he said. “We saw this during COVID, where consumers — because of spending constraints and so forth — made purchases they later regretted.”
In fact, the pandemic and subsequent surge in eCommerce and digital traffic have ushered in many different areas of disputes stemming from confusion, a lack of clarity or the sharing of credentials with a spouse, child or friend.
“As we saw a lot of that spending migrate to digital channels [during the pandemic], the disputes and chargeback volume also came with it,” Briscoe said. “We saw a pronounced effect around that.”
Avoiding Friction
Of course, Briscoe said it’s also important to find a balance where customers feel protected making purchases online, but also feel that they can do so smoothly.
Introducing extra steps around authentication is one way to reduce problems. So is providing clear information upfront that allows consumers to understand the policies and terms around their purchases.
But Briscoe said it’s also very important for merchants to minimize false declines, especially during the holiday season.
“For every $1 in legitimate fraud, there is $13 in transaction value that is falsely declined,” he said. “You can imagine the amount of potential discretionary purchase volume that flows through the system that is getting stopped in its tracks because of the inefficiency of some fraud tools.”
He touted solutions like Ethoca’s collaborative resolution system to help merchants avoid a lot of operational expenses and lengthy processes that alienate customers. Briscoe said that with the Ethoca system, merchants have an opportunity to correct an issue with a cardholder by offering a refund before it goes to the formal chargeback process.
“That is actually very painful for everyone, both from an OPEX point of view and in the increased cost for both merchants and issuers, as well as the poor experience for a consumer,” he noted.
Briscoe said that everyone’s goal should not be to disrupt legitimate purchases, but to protect against fraud as much as possible in the background.
“I think everybody realizes the chargeback process is not fun for a consumer,” he said. With something as simple as a refund and the merchant effectively making the consumer whole, “we can completely cut out all of that unnecessary friction and the costs that go along with it.”
