customer convenience must be balanced with reasonable measures to prevent e-commerce chargeback fraud

60% of digital businesses will be disrupted by a cyber attack
Scan your website for SQLi, XSS, & 4500+ additional vulnerabilities with Netsparker. Eliminate false-positives with our Proof-Based Scanning™ technology. Learn more!

Contemporary online retail enables faster, smoother and more profitable interactions between consumers and merchants. Individuals can shop and make purchases at any time, from any location, with the help of the devices resting in their pockets. Plus, with innovations like same-day shipping, IoT-connected devices, and much more, it’s never been easier to be a consumer.

As a merchant, you have a vested interest in streamlining the customer experience and minimizing friction wherever possible in the purchasing process. There are downsides to this premise, though.

For example, the speed and ease of access to online shopping created a culture of instant gratification. This culture was not accompanied by a broader discussion of the expectations, protections and responsibility that every party carries, though. That disconnect has significant ramifications for businesses and consumers alike, with a financial impact totaling billions of dollars every year.

The Problem With Convenience

We obviously tend to think of increased convenience in a positive light. After all, removing friction from the process and making sales faster and easier is a benefit for consumers, as well as for the merchants who sell to them. How could convenience be a bad thing?

The problem is that, simply put, online fraud is a serious concern. Despite the risk, though, the expectation of ever-increasing convenience has led to a situation in which businesses and consumers alike prioritize convenience over due diligence. Fraudsters employ increasingly sophisticated tactics to abuse consumers, constantly adapting to stay ahead of fraud detection tools.

Let’s look at identity fraud as an example. The number of victims in the U.S. increased by 8 percent in 201, rising to 16.7 million individuals, according to Javelin’s 2018 Identity Fraud Report. Fraudsters can deploy phishing tactics to steal consumers’ information, and the consumers, not trained to perform due diligence for personal protection, fall for the trap. In total, fraudsters managed to steal US$16.8 billion through identity theft during that period — and that’s just one of many potential points of attack.

Of course, customers do have some recourse when fraud occurs. Buyers can file chargebacks, which are forced payment reversals. Chargebacks empower the cardholder’s issuing bank to claw back the funds from a transaction if that transaction is found to be fraudulent. As we’ll see, though, this state of affairs creates more problems than it actually solves.

Enables a Sense of Entitlement

When consumers fail to secure their personal data and online accounts, they’re not acting according to security best practices. However, they feel entitled to do this by the culture of convenience surrounding e-commerce. This behavior is reinforced by the proliferation of “zero-liability” accounts and other standards that shift liability away from buyers.

In the customer’s mind, they expect others to reimburse their losses when fraud occurs. If customers don’t feel vulnerable to fraud, then they don’t feel the pressure to try to avoid it. Banks and card networks encourage this consumer entitlement by absolving customers of financial responsibility. This combination of circumstances has led to the rise of what we call “friendly fraud” over the last decade.

Unlike the more conventional forms of online fraud that most readers are familiar with, friendly fraud is a form of chargeback abuse practiced by cardholders. The buyer makes a purchase, then later files a chargeback without proper justification. It could be due to confusion about the merchant’s return policy, buyer’s remorse, or even a very simple misunderstanding. In any event, the end is the same: The customer gets something without paying for it, and the merchant loses both merchandise and sales revenue.

We have a clear double standard in the chargeback system as it is now. The burden of preventing fraud falls on merchants, regardless of whether the incident is their fault. It’s gotten to the point that a mechanism intended to protect consumers from fraud now enables it instead.

Chargeback abuse distorts the e-commerce marketplace, determining “winners” and “losers,” while making it more difficult to…