Noam Grinberg, Head of Risk Management at SafeCharge, gives 7 tips to online merchants to minimise the problem of friendly fraud.
“Friendly” fraud? It sounds ironic doesn’t it? This is a term for chargeback fraud, where a consumer makes an online transaction with their own credit card and subsequently requests a chargeback from their card issuer after the event, denying they had the goods or claiming they did not make the transaction.
Friendly fraud can vary a lot between types of online transactions. Some industries (for example financial services) are more affected by friendly fraud as the transactional amounts are much higher than in other sectors, and it is easier for the users to process chargebacks, claiming that they didn’t receive the service or didn’t authorise a transaction. In financial service business it is estimated that 70 % of the total transactions reported as fraud are friendly fraud, so it’s a big problem.
So how can online merchants reduce the risk of friendly fraud? It’s best to use a third party payment provider that can offer 3D Management where security is increased and conversion is reduced. Use sophisticated real-time rules engines that can block or flag suspicious sales, a risk platform to handle the system’s alerts and negative/positive lists. Have a system that can support combatting friendly fraud by setting limits and flagging excessive users but is also built to primarily address real fraud users.
Increasingly we see more and more occasions that are requiring the use of 3D secure for credit cards especially in the financial service industry. This trend will continue because of the high sale amounts and fraud.
Seven tips for merchants to prevent friendly fraud and chargebacks
• Be transparent with users during the marketing process
• Very high deposits should be sent via wire transfer and not credit cards
• Set a deposit limit for credit cards for sales count and sales amount
• Collect KYC documents for accumulated deposits over a certain amount
• Ask users to sign on “deposit confirmation” documents following a certain number of deposits
• Integrating to an applicable third party risk system
• Have a dedicated risk team that will handle the risk system alerts and will check trends
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SafeCharge International Group Limited
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SafeCharge International Group Limited is a global provider of payments services, technologies and risk management solutions for online and mobile businesses. The SafeCharge group has a diversified, blue chip client base and is a trusted payment partner for customers from various e-commerce verticals. SafeCharge has been Payment Card Industry Data Security Standard (“PCI-DSS”) Level 1 certified since 2007 and is listed on the London Stock Exchange AIM market (LSE: SCH). The Company’s wholly owned subsidiary, SafeCharge Limited, is an authorized Electronic Money Institution regulated by the Central Bank of Cyprus and a principal member of MasterCard Europe and Visa Europe. The SafeCharge group has operations in the UK, Cyprus, Bulgaria, Israel, Germany, Austria and Ireland. www.safecharge.com