Merchants are Cutting Costs to Save Money. That May Not be the Best Idea.
Few people would argue, at this point, that the COVID-19 outbreak is impacting how we all do business. Merchants, financial institutions, card networks, and third-party vendors are all shifting their usual resources to meet the challenge.
As a merchant, you might be facing supply chain disruptions, delivery delays, and customer service overloads. At the same time, you’re trying to manage changing customer volumes and behaviors. All this can put a tremendous strain on your business’s resources.
Some merchants have come to the conclusion that cuts to their operations are unavoidable in this context. It’s true that everyone may have to tighten their belt in certain areas, but there are some corners you just can’t cut. Cybersecurity is definitely an example of this.
In fact, given the current situation, your cybersecurity budget may be more crucial than ever.
Cutting Corners on Fraud Prevention
Some businesses are making the critical decision to cut cybersecurity spending in the wake of the pandemic.
As reported back in June, one study anticipates a $6.7 billion decrease in global security software and services spending through 2020. This decrease is directly tied to the economic fallout resulting from the pandemic. The report also suggests that internal teams will see leaner budgets and potential staff cuts as a result of this need to save money.
As of the study’s publication, nearly two-thirds of businesses said they planned to delay capital expenditures on security tools. 65% said they planned to cut expenditures on security consulting and contracting.
As we alluded to before, the impulse driving these cuts is understandable. From the merchants’ point of view, they see that costs need to come down, and with less traffic, it can be tempting to reduce security as a way to save money. This is a mistake, though … one that could cost these merchants very dearly in the short- and long-term.
Don’t Play Into the Criminals’ Hands.
Talk to us before cutting your fraud prevention expenses. We have a better answer.
Fraudsters View COVID-19 as an Opportunity
We’re seeing massive upheaval across the market. Businesses and consumers are forced to adjust to new situations that develop every day. Under these circumstances, security could be more crucial now than ever.
When it comes to fraud, criminals are very opportunistic. If they become aware of businesses paying less attention to their security best practices, they won’t hesitate to take advantage of the situation. What makes this truly challenging, though, is that fraud and security threats aren’t a singular, monolithic problem.
It’s important to distinguish between data security and fraud prevention. With the former, you’re focused on protecting your customers’ data from breaches and hacks. With the latter, you identify and intercept transactions submitted without a cardholder’s permission. Both are important facets of a comprehensive security strategy.
Abuse could come from numerous sources; for instance, a fraudster might test your security protocols to identify a weak point, then launch a cyber-attack that compromises your customers’ data. A data breach like this can carry substantial consequences in terms of liability and reputational damage and can cost you for years to come.
Then there’s the threat of fraudsters using compromised data to complete illegitimate transactions. We always recommend employing a dynamic, multilayer fraud management strategy. We do this specifically because fraudsters will have a field day if you cut corners on criminal fraud detection tools and tactics.
Insufficient security practices in any part of your business could cause problems. The end result: a surge in fraud and fraud-related chargebacks. This will cost you revenue and merchandise, plus the cost of added chargeback fees, increased overhead in other departments, and other long-term threats to your bottom line. While you save a little now, you pay a lot more in the long run.
Other Chargeback Loss Sources
Of course, the criminals aren’t the only thing you need to worry about. Legitimate customers could also engage in friendly fraud, leading to losses you never anticipated.
Friendly fraud occurs when a buyer makes a seemingly-legitimate purchase, then later files a chargeback without a valid reason to do so. It could be because of buyer’s remorse, confusion about merchant policies, or because the customer simply wanted to get something for free. In any case, the end result is the same.
It’s difficult to get a solid, up-to-the-minute impression of where we stand in terms of friendly fraud attributable to COVID-19. This is because chargebacks typically occur weeks, or even months, after the initial transaction. However, recent data tracking dispute sources find that friendly fraud saw a 27% year-over-year jump in April. That number will only increase with time as the pandemic drags on.
Friendly fraud has been on an upward trend for the last decade. These disputes will cost merchants more than $50 billion in 2020 and are expected to account for more than 60% of all chargebacks by 2023. Even worse, because of its post-transactional nature, the only way to mitigate these losses is through chargeback representment,® a complicated and time-consuming process.
Even those projections might be optimistic, as they don’t account for the surge of activity resulting from the COVID-19 outbreak. As consumers shop more online, they’re more likely to file chargebacks without a valid reason. And, given that roughly 50% of consumers who get away with friendly fraud will do it again within 90 days, you could be facing some serious trouble up ahead.
You Can’t Afford to Let Security Standards Slide
Here’s the simple truth: security and fraud prevention spending is essential spending that you can't afford to cut.
At Chargebacks911®, we take security very seriously. All our processes are PCI Level 1 compliant, ensuring total data protection for our clients and their customers. We refuse to cut corners…and we strongly encourage you to take up the same commitment.
“I can’t afford it!” you say? We hear you. That’s why Chargebacks911 is dedicated to helping you use your resources more efficiently.
Instead of cutting tools and services, you should angle to maximize the resources already at your disposal. This will enable you to prevent losses, recover more revenue, and see a better return on your investment. Want to learn how? Click below and get started today.