5 Important Facts About Fraud Detection


It’s Time to Separate Fraud Fact from Fiction

The majority of merchants assume that there is only so much they can realistically do about online fraud. Fraud and the resulting chargebacks are generally accepted as a cost of doing business.

The facts seem to disagree, however: In truth, there is a variety of different solutions open to merchants in the fight against card-not-present fraud.

These five simple facts about fraud will challenge much of what merchants thought they already knew about this ecommerce threat.

1. Most Fraud is Friendly Fraud

for-sale-fraudThanks to high-profile data breaches (and widely-publicized occurrences of  fraud after a data breach), merchants generally assume that criminal fraud is the most common form of fraud. In reality, while criminal fraud is a problem in its own right, it actually accounts for fewer than 10% of all disputed transactions.

Our proprietary research has revealed that as much as 86% of all chargebacks are actually friendly fraud, not criminal fraud. Friendly fraud is also the fastest-growing form of fraud, expanding by roughly 49% every year. So, while merchants may lose as much as $2 billion a year as a result of identity theft, they lose more than $12 billion to friendly fraud.

Merchants will not see significant results if they’re trying to fight friendly fraud as criminal fraud. That’s why it’s important to understand the true source of transaction disputes.

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2. Reason Codes Are Unreliable

reason-codesHow can Chargebacks911 substantiate the fact that 86% of chargebacks are cases of friendly fraud when the vast majority of reason codes imply unauthorized transactions?

Friendly fraud’s strength is in taking what merchants thought they could trust and using it against them: reason codes.

The advent of the internet has made reason code intelligence ineffective. Any reason code can be used to disguise friendly fraud. Therefore, merchants can no longer take chargeback reason codes at face value.

Once that fact is accepted, it becomes much easier to understand how friendly fraud has become so pervasive.

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3. It is Possible to Identify and Prevent Friendly Fraud

identify-fraudIf reason codes don’t explain the real motive for the transaction dispute, how can merchants effectively mitigate their chargeback problem? The solution is to determine the actual source of the chargeback without relying on reason codes.

All chargebacks are caused by just one of three things:

To create effective prevention and representment tactics, all merchants need to do is determine which source is to blame and then resolve the original problem.

In theory, this sounds like a simple fix; putting it into practice, however, is considerably more complicated. Without professional expertise and technologies, the task is impossible:

  • Merchants base their management strategies on insufficient data.
  • They implement ineffective solutions that target the wrong problem.
  • Their efforts only address the symptoms, not the actual chargeback source.

That’s why Chargebacks911® created Intelligent Source Detection™, a chargeback management tool that is capable of detecting the real source for each transaction dispute.

This unique combination of proprietary technology and human forensics produces actionable results:

  • Guaranteed, sustainable, long-term ROI
  • Additional monetization opportunities enabled by the detection of disputable friendly fraud
  • Creation of more effective disputes
  • Decreased chargebacks, which ensures credit card processing capabilities and long-term sustainability
  • Minimized merchant operating expenses, processing costs, and impact of fraud
  • Reallocation of valuable resources to focus on core competencies, attract new customers, and grow the business
  • Protection of brand and reputation through improved merchant-issuer relations
  • Decreased issuer declines, decreased false positives, and increased conversions
  • Optimized scalability
  • Higher customer retention rates

4. Fraud Filters Aren't Capable of Detecting All Threats

analyticsFraud filters are an excellent first line of defense against chargebacks and unauthorized transactions. Filters aren’t fail proof, however: "fraud" is a general term for an evolving issue with several different genres. Fraud filters detect some threats, but not all.

For example, affiliate fraud is not completely detectable with standard filters; human forensics are needed. Fraud filters work off machine learning that is tied to historical analysis. Effective affiliate fraud detection requires present analysis with dynamic datasets.

Our Affiliate Fraud Shield product is the perfect complement to traditional fraud filters. Merchants should not engage in affiliate marketing without adding this extra layer of protection.

5. Complimentary Technologies Make Merchant Strategies More Effective

alertFraud mitigation and chargeback management strategies vary, depending on the individual threat that a merchant is confronted with.

Sometimes, a drastic and immediate reduction in chargebacks is needed. That’s when chargeback alerts can help.

Several issuing banks have joined chargeback alert networks. When cardholders dispute a transaction as unauthorized (a case of criminal fraud), the bank will send an alert instead of a chargeback. If the merchant refunds the cardholder, a chargeback can be avoided.

Chargeback alerts ensure a dramatic drop in chargeback issuances, which can help improve the chargeback-to-transaction ratio when thresholds are in danger of breachment.

Chargebacks911 offers the broadest global alert coverage. Clients are connected to our own proprietary network along with other third-party vendors. Our non-technical integration is quick and easy, with most merchants fully incorporated within just 24 hours.

It’s important to implement a long-term strategy for dynamic chargeback prevention. However, when merchants need immediate results, chargeback alerts can help.

Merchants Have the Solution

The facts are in, and the conclusion is plain to see: chargebacks can be prevented. Merchants need to take a stand against chargeback losses in order to ensure longevity and optimize profitability.

If you’d like additional information, contact Chargebacks911 today.

Prevent Chargebacks.

Fight Fraud.

Recover Revenue.

5490    Chargeback Prevention, Friendly Fraud    

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