Card issuers may be looking forward to the days when fraud is only a tiny piece of the headache pie, but one expert said the anticipated rise in card-not-present fraud as a result of the EMV shift could fuel a new crop of fraudsters – the cardholders themselves.
As EMV makes fake credit cards harder and harder to use in physical retail locations, experts predict credit card fraud will move to online, telephone and mail order channels. And according to Monica Eaton-Cardone (pictured), co-founder and chief information officer of dispute mitigation and risk management firm Chargebacks911, which is headquartered in Clearwater, Fla., cardholders will be complicit in much of that fraud.
Chargebacks occur when cardholders call their issuers to request a refund for a purchase made on their credit card when they have a merchant dispute. Issuers typically handle the dispute resolution and pass the cost of the refund on to the merchant, crediting the cardholder's account.
But increasingly, cardholders are requesting chargebacks for things that can no longer be returned or that they simply don't want anymore. This so-called friendly fraud is mushrooming – growing 41% a year, according to Eaton-Cardone – and online shopping is greasing the skids.
In fact, friendly fraud tends to increase after news of a major data breach, Eaton-Cardone told CU Times. "Unfortunately, when you educate the public that there could be a possibility that their credit card was stolen and you have someone who has shopped at, say, Target, they may feel tempted to jump on that bandwagon [and say] 'Hey, you know all those online transactions – I think I was a victim as well.'"
Eaton-Cardone said that in cases of friendly fraud, one chargeback is actually worth one and a half chargebacks, because 50% of members who don't get caught will do it again within 60 days. Chargebacks on items more than $500 and items that are hard to return are often red flags – especially if the cardholder hasn't made a payment, she added. Digital goods have high rates of friendly fraud because they convert easily to cash, she added; clothing is a target because people often want refunds after the retailer's return window has closed.
Issuers and merchants have long been pliable with chargebacks because dispute-resolution time often gets a lot of weight in cardholder satisfaction measures, Eaton-Cardone said. But anti-fraud regulations and EMV are putting pressure on financial institutions to scrutinize transactions more carefully now.
Read more: Card issuers could also be part of the problem …
"It used to be where you could go to a store and spend $1,000 and nobody called you," she said. "Now if you spend a higher amount than normal, it's put in a pending status, then you can decline. So, there's tons of intelligence on that, but 86% of the cardholders that call to file a chargeback have never contacted the merchant."
She added, "If you were the issuer, you probably didn't see a consequence until recently. Now, you are seeing a consequence, because what is happening, every single friendly fraud case that you let slip through the cracks, you're going to get one and a half."
Eaton-Cardone said more and more companies will likely start aggressively fighting chargebacks, including on purchases made using smartphones and gaming systems where children are often the culprits because parents haven't turned on the devices' parental controls.
One of the biggest things card issuers can do is contact the merchants. When a cardholder claims he or she never received a product, for example, the issuer might call the merchant and find out there was a tracking number and a delivery signature, she said.
"Even just telling the customer, 'Hey, you know what, we're going to do a three-way call with the merchant,' then they realize that they're going to get caught,'" she said.
She added, "I also don't think that the majority of consumers that file friendly fraud chargebacks are doing it to create a consequence. I think that in their opinion they are ignorant to what really happens behind the scenes. They think that it is just their bank giving them the money back, and, you know, it's this virtual party that has no face or identity."
Card issuers could be part of the problem, too.
"I don't think advertising '0% liability' helps the problem," she said.
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