Last week's post discussed the increasing frequency of friendly fraud and the problems it presents for e-commerce merchants. A transaction that could be classified as friendly fraud might actually be one the customer just forget about, or one involving a family member using the customer's card without permission, or one with the customer actually not receiving the goods. So the merchant really can't just assume the customer is out to commit fraud and take an aggressive approach in dealing with the customer. The merchant would probably then have lost the customer's business altogether. But with the burden of proof on the merchant, the merchant must adopt a number of best practices to help minimize losses.
A company that works with merchants to both prevent chargeback disputes and respond to them has published a detailed guide (the site requires e-mail registration for access to the guide) to help merchants deal with friendly fraud. The following list includes some of the guide's best practices:
- Promote a clear and fair refund policy that encourages customers to contact the merchant directly instead of the card issuer.
- Make sure that the name of the business is on all billing statements—clearly, to avoid confusion.
- Ensure that the customer communication channels—such as a call center or e-mail—are accessible.
- Be responsive to customer inquiries.
- Clearly communicate shipping charges and delivery timeframes to avoid misunderstandings about the total cost or delivery date of orders.
- Always obtain the card security code and use address validation services. For larger-value purchases, consider the use of delivery confirmation and other validation services.
- With digital goods or services, consider using a secondary verification tool—an activation code or purchase confirmation page—to ascertain that the customer received the goods.
- When there is a chargeback, make every effort to contact the customer directly to attempt to resolve the matter. While the contact may not resolve this particular situation, it may offer a lesson that might help prevent future chargebacks from other customers.
- Keep a database of customers who initiate chargebacks that appear fraudulent. Research shows that customers who deliberately defraud merchants and succeed at it are very likely to do it again.
As with all efforts to fight payments fraud, merchants must study their own customer base. They should identify their particular risks and then employ the practices that will help them best mitigate their fraud losses.
By David Lott, a payments risk expert in the Retail Payments Risk Forum at the Atlanta Fed