Chargeback fraud is increasingly a bane of life for fashion retailers, but there are ways to fight against it.
Textile, clothing and footwear make up 13.9% of all online sales in the UK, according to the ONS, and this makes it an attractive market for fraudsters. In particular, chargeback fraud is a growing menace. Recent figures show that 49% of large ecommerce merchants and 47% of mobile merchants have suffered from chargeback fraud and this number is rising, according to a study by LexisNexis, True Cost of Fraud 2016.
In the UK, if you spend more than £100 on a credit card and that transaction is disputed – ie, you did not get the goods or services you paid for or they weren’t sold as advertised – under Section 75 of the Consumer Credit Act, you can obtain a refund from your card issuer. There are similar rules (although they are not enshrined in law in the same way) for debit cards and on transactions of less than £100 on credit cards.
On a disputed chargeback transaction, the consumer will contact their card issuer who will, if the dispute is successful, refund the card holder and then claim back the funds from the merchant.
Chargeback fraud can be committed by otherwise honest shoppers, who get what they paid for but still claim a chargeback on it – this is often called “friendly fraud”. Or it can be committed by criminals who access illegally obtained card details to make purchases online and then instigate a chargeback to get the money refunded to their accounts.
So how can fashion retailers fight back?
”Friendly” chargeback fraud
Friendly fraud happens when customers claim what was sent to them was not what they expected when they ordered it or that it didn’t arrive at all. There are two fairly straightforward practices retailers can do to make sure this doesn’t happen:
- Take care when fulfilling orders – Make sure there are protocols and processes in place to ensure that what you are sending to a customer is exactly what they ordered and is not damaged or soiled.
- Track the delivery – Sending items out under recorded delivery means that you can know for sure that the items were delivered.
Critical to both of these is keeping an accurate paper trail. If you can prove that your customer isn’t being truthful when they claim a chargeback, then you have far more likelihood of being able to successfully challenge it.
Criminal chargeback fraud
The key to stopping this is stopping fraud. If you can stop fraud, then you can stop the chargebacks that arise either from disputed transactions or from criminals.
Again, there are some useful tips to stopping fraud:
- Is your customer who they say they are? Spotting a fraudulent transaction can rely a lot on being able to monitor customer behaviour. Does your customer’s delivery address match their card billing address? Are they a new customer immediately buying big ticket items? Are they a regular customer showing different or unusual spending patterns? All of these, and more, can be indicators of possible fraud
- Where is the transaction coming from? Mobile is the increasingly dominant platform for commerce, but it is also more vulnerable to fraud than other ecommerce platforms, so it is important that you can tell if the transaction is coming from a mobile device.
- Check your codes – If you have a chargeback, your acquirer will notify you and will issue a chargeback code explaining why this chargeback has happened. Checking the code against your own records will give you the ability to challenge it if you believe it is fraudulent. This should be the last resort, though. Ultimately, the goal is to stop a chargeback from getting to this stage.
Beating chargeback fraud is fundamentally a matter of making sure that your own house is in order. If you properly check and track your orders and make sure that you have up-to-date anti-fraud technology in place – and that it is regularly updated against emerging threats – then you are well prepared to face the threat head on.
Don Bush is vice president of marketing for fraud prevention firm Kount