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In-App Purchase Chargebacks

In AppPurchaseChargebacks

Don’t Play Around with Unauthorized Purchases!

What if the buyer on the other end of a transaction isn’t a criminal, but is not necessarily an authorized user, either? That’s the issue now facing thousands of digital goods merchants, as well as some of the world’s largest names in technology and retail.

Kids’ Unauthorized Purchases Cost Millions

In April 2017, Amazon agreed to refund consumers for roughly $70 million of unauthorized in-app purchases. However, the culprits weren’t criminals—instead, these transactions were all made by children.

Amazon App Store debuts, no authentication required for in-app purchases.

2011

Introduces password-protection for purchases exceeding $20.

2012

Passwords required for all purchases, but allowed a 15-minute window after entering the password.

2013

Point at which the FTC asserts Amazon’s authentication was firm enough to constitute “informed consent.”

2014

Amazon App Store debuts, no authentication required for in-app purchases.

2011

Introduces password-protection for purchases exceeding $20.

2012

Passwords required for all purchases, but allowed a 15-minute window after entering the password.

2013

Point at which the FTC asserts Amazon’s authentication was firm enough to constitute “informed consent.”

2014

2011

Amazon App Store debuts, no authentication required for in-app purchases.

2012

Introduces password-protection for purchases exceeding $20.

2013

Passwords required for all purchases, but allowed a 15-minute window after entering the password.

2014

Point at which the FTC asserts Amazon’s authentication was firm enough to constitute “informed consent.”

Kids with access to their parents’ devices or accounts make tens of millions of dollars in unauthorized in-app purchases every year. While most micro-transactions are very small, some of these totals easily exceed $100 cumulatively before the parent is aware of the situation. By then the damage is already done.

This comes after Amazon agreed to drop their appeal of an earlier FTC complaint alleging that parents were not liable for their children’s unauthorized purchases. The FTC previously settled with Apple and Google on the same subject in 2014, demonstrating that this is not an issue exclusive to one company.

Evolving Authentication

Authentication as an Evolving Process

The base of these claims is that the company’s platform bears responsibility for the sales. The purchase was not fully-informed because family members made the transaction without needing the cardholder’s authorization.

Consider the timeline of the Amazon App Store’s authentication protocols:

According to the FTC’s claims, Amazon was liable for these transactions because they didn’t apply strong enough verification standards. Their trouble is just one high-profile example of a very common problem.

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Balancing Security and Service

Digital goods merchants are under pressure to balance the need for user authentication and reduce transaction friction. Overly-strict authentication standards frustrate customers and lead to abandoned purchases, but with more lax security comes the threat that unauthorized users might make purchases.

The question remains, when a buyer uses a family member’s information to make an in-app purchase without the cardholder’s knowledge, is it fraud? Technically, the transaction is valid since the shopper had every intention of completing the purchase. However, the cardholder did not authorize the transaction. Therefore, the cardholder feels justified in requesting a chargeback.

Unauthorized transactions by family members are one of the primary causes of chargebacks. This “family fraud” can affect merchants in any product category, but tends to be exceptionally threatening to digital goods merchants specifically because of children making in-app purchases without a parent’s consent.

Parents often refuse to accept responsibility for charges made by children when the bill arrives the following month. They might believe that the charge was fraudulent, or that it’s the merchant’s fault for failing to provide the necessary authentication tools.


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Can Merchants Prevent Unauthorized In-App Purchases?

Merchants should not technically be responsible for children’s unauthorized purchases, but banks often side with cardholders in these cases anyway. Even if the sale was entirely legitimate on the merchant’s end, sellers will be left holding the bill for the lost profits and chargeback fees due to these unauthorized transactions.

The problem is not going to go away. Therefore, it’s up to merchants to protect their revenue from the threat of in-app purchases:

 Make Customer Service Readily Available

Providing consistent, round-the-clock customer service is always the first step toward preventing chargebacks.

Customer service should be accessible as many hours a day as possible via phone, email, and social media. If live 24/7 service is not possible in-house, merchants should provide some form of contingency service. While auto-responders are an option, the best solution is to contract with a third-party answering service to handle overflow and off-hours calls.

 Validate Customers' Receipts

Major app stores like Apple and Amazon allow merchants to offer receipt validation with in-app purchases. This allows sellers using this platform to validate purchases made by users from the merchant’s server. This ensures customers receive the items they buy and that the user ID is valid, while also providing merchants with a clear record of the transaction.

 Address Complaints and Offer Refunds When Suitable

With the Amazon App Store settlement, many parents alleged the company suggested refunds weren’t possible. However, we know that when dissatisfied customers are unable to secure refunds, they often take matters into their own hands and go directly to the bank for a chargeback.

Showing genuine concern for a customer’s situation can go very far toward ensuring positive interactions between merchants and customers. If customers request refunds after a family member makes an unauthorized purchase, it may be best to satisfy their demand. Although offering a refund isn’t ideal, it is still preferable to a chargeback.

 Incorporate Parental Controls

Many users are unaware that iOS, Android, and Kindle devices all offer restrictions on in-app purchases using the devices’ content control settings.

It’s a good idea to remind customers of this fact whenever possible—add information to your site instructing customers how to disable or restrict in-app purchases. Some designers also incorporate prompts into their apps to remind users to set parental controls.

This Kind of Fraud Demands Additional Help

The above-mentioned practices can help prevent some chargebacks. However, the amount of information, insight, and expertise available to merchants is still too limited to contend with most cases. Only professional assistance can provide a comprehensive solution.

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