Fraud is something every merchant needs to try to manage and prevent. Especially in the United States where nearly half of the world’s credit card fraud occurs.
There are two forms of merchant fraud: Chargeback Fraud (aka Friendly Fraud) and Identity Theft.
Friendly fraud occurs when a customer lies in order to get their credit card company to refund a transaction.
When a customer’s identity is stolen and products are purchased illegally with a stolen or fake credit card, a merchant can suffer from the chargebacks following the illegitimate purchases.
Friendly fraud accounts for 18% of merchant fraud cases. And in 2014, the number of identity fraud victims reached 12.7 million and the total fraud amount was $16 billion.
There are a few reasons why friendly fraud might happen:
- The customer intended to get something for free
- The customer forgot they made the purchase
- Someone in the customer’s family made the purchase without their knowledge
- Buyer’s remorse (the customer regrets the purchase)
The impact of this fraud:
- Retailers and merchants lose money from the disputed sale
- Credit card companies have higher costs
- Consumers pay higher prices
How to reduce fraud related chargebacks:
- Use descriptors to define your business on a customer’s billing statement. There are two types: hard and soft descriptors.
- Soft descriptors appear after a transaction has been authorized and is still pending.
- Hard descriptors are permanently displayed after the transaction has been settled.
- Keep documentation of transactions – You can use documentation of the sale, and the customer’s signature, to use as a defense mechanism if a customer disputes the transaction.
- Use fraud prevention tools – You can find several fraud prevention services online to help identify fraudulent activity.
- Use PCI compliant security tools – Address verification services, CVV2, and CVC2.
- And lastly, ALWAYS authorize a transaction!
Reducing Fraud with Total-Apps
We offer secure payment processing to all of our merchants. Some tools include PCI compliance, Address Verification, Transaction Authorization, and EMV.
To make sure fraud is handled promptly, our committed account managers review merchant accounts daily for chargebacks and fraud flags. If a problem is detected, we notify you in minutes so it can be fixed right away.