Consumer Behavior Fuels Fraud And Retailers Need To Fight Back

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Trying to provide customers with a simple, streamlined and frictionless interaction is a more-or-less universal goal. Every retailer wants to give customers a great experience that will have buyers coming back again and again. Unfortunately, the trend toward frictionless commerce has its downsides.

Consumers expect to receive products faster and pay less for them. In effect, we’ve created a culture of instant gratification surrounding online retail, and that fact holds consequences for consumers and retailers alike.

Entitlement And Lack of Education Mean More Risk

E-Commerce buyers have developed a disconnect between their expectations and their responsibilities as consumers. As a result, they often engage in unsafe behavior online, enabling fraudsters to carry out phishing attacks and other forms of fraud.


On the one hand, consumers are acutely aware of the risk online fraud represents. The average cardholder wants to be proactive about fraud risks. However, misunderstandings about the realities of online fraud, plus a lack of adherence to security best practices, means buyers are still vulnerable. They may be tricked into handing their sensitive information over to fraudsters via a phishing site, or someone impersonating a trusted individual like a family member or financial advisor.

We have a situation in which consumers feel entitled to a frictionless experience. Simultaneously, they’re very aware of online fraud, but don’t know how to protect themselves from it.

When consumers suspect fraud, they won’t hesitate to contact their bank to demand a chargeback. Of course, chargebacks exist as a form of consumer protection against fraud, so this isn’t a problem in theory. The issue is that consumers have little incentive to learn how to better secure their data.

We’re training customer expectations by reinforcing negative behaviors and fostering a culture in which consumers don’t understand the impact of their actions.

Simultaneously, customers expect to be entitled to a chargeback. This is a recipe for disaster…and merchants are the ones who end up paying the price.

Consumer Entitlement Fueling Friendly Fraud

So called “friendly fraud” occurs when a customer files a chargeback without the right justification. There could be numerous reasons for this; for instance, a buyer might want to return an item, but is unable to find the return policy on a merchant’s web site. Or, the buyer could simply experience buyer’s remorse, and misunderstand the difference between a return and a chargeback.

While it seems like an innocent mistake, friendly fraud is no joke. Friendly fraud is expected to cost upwards of $25 billion a year by 2020, through a combination of lost revenue and merchandise, added fees, administrative overhead and threats to sustainability. This affects other parties, too, as card networks see more fraud reports and banks are bogged down in dispute cases. Consumers ultimately pay when businesses are forced to raise prices to cover the added expense.

Friendly fraud is directly tied to our problem with consumer entitlement. Buyers are trained to expect that a chargeback will always be an option to recover money. This gives them the impression that they have no real responsibility to merchants, banks or other consumers. It’s a kind of feedback loop, which explains the rapid growth of friendly fraud in the last decade.

Plus, the more chargeback abuse persists, the harder it is to produce useful fraud data. Inaccurate data makes it hard to deploy fraud prevention tools effectively, opening the door for criminal fraudsters to strike.

The longer we allow consumers to take a lax attitude towards phishing and other online threats, while simply expecting to recover their money at a whim, the worse the situation will get. That’s why merchants need to take the lead.

Getting Proactive About Payment Threats

Commerce has changed dramatically since chargebacks first hit the scene in the mid-1970s. We’ve seen the rise of e-Commerce, mobile technology, same-day shipping, even voice-enabled commerce. How we address fraud hasn’t kept pace with the constant and rapid disruption in the retail sector, though.

The dual challenges of chargeback abuse and consumer entitlement are not unique to one vertical, payment model or card scheme. The current state of affairs calls for a coordinated approach to establish standard practices for consumer response to suspected fraud and dispute resolution.

We’re talking about revolutionizing divergent card scheme rules and processes, establishing how banks interpret those rules and how merchants respond. We also need to work toward redefining consumer expectations and ultimately modifying behaviors.

However, bringing all the players in the payments process together will be a massive undertaking. It’s going to require some time before we can muster the will throughout the payments industry to start this process. Until then, merchants will need to take a proactive approach.

Merchants are the party that interact directly with consumers during the transaction process. Thus, it’s up to merchants to help define customer expectations and respond to dispute cases appropriately.

All disputes originate from one of three key sources: merchant error, criminal fraud and friendly fraud. Each source calls for a unique response, though there are a few general pointers that can help minimize the impact of chargebacks:

  • Use Antifraud Tools: Fraud scoring, geolocation, AVS and 3-D Secure technology should be part of a broader, coordinated strategy to identify criminal attacks. This prevents fraudsters from using stolen information to complete transactions.
  • Optimize Service: Try to provide live customer service as many hours a day as possible. Answer all calls within three rings and respond to emails promptly. Great service reassures customers that you’re willing and able to help, dissuading them from turning to a chargeback.
  • Be Thorough and Accurate: Ensure all product descriptions and images are accurate, detailed, and lay out realistic expectations for the product. Also, be sure your return policies and other key information is clear and easily accessible from every page of your site.
  • Respond to Disputes When Appropriate: With post-transactional threats like friendly fraud and cyber shoplifting, the only way to recover your funds is through representment. You can manage representment internally or outsource to a chargeback management service.

Retailers are on the front line in the fight against increased fraud activity. They play a key role in reshaping customers’ behavior and expectations and, ultimately, turning the tide away from criminals and in favor of businesses and consumers.


Risk management and fraud prevention expert Monica Eaton-Cardone is co-founder and COO of Chargebacks911, a global chargeback mitigation company.

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