Fraud, Disputes, and Chargebacks: Reasons Behind the Rise & What Can Help?

052720lsc.png

One benefit 2020 brought was the shift towards digital payments, with many card issuers re-prioritizing payments initiatives and moving contactless and digital offerings to the top of the list. But this shift has also led to a sharp increase in fraud, disputes, and chargebacks. According to a recent survey on the U.S. debit market by Worldpay and Forrester, 2020 presented more than a 50% increase in chargebacks. as fraud management dropped to an overall fourth priority (PULSE), with 90% of merchants reporting lost revenue due to payments fraud.

With an estimated chargeback volume in excess of 600 million for 2021 according to “Purchase Clarity: A Digital First Strategy for Preventing Disputes” in the PaymentsJournal, the increase is expected to overburden credit unions and card issuers. While FIS reports over 80% of merchants now use 3D secure for authentication, credit unions may want to look at other solutions to relieve the strain caused by the increase in disputes and chargebacks.

While the shift to digital is expected to remain and organically increase fraud attempts, the 2021 Chargeback Field Report showed a 79% increase in friendly fraud between 2018-2021, making it important to look at the types of chargebacks the credit union is experiencing. Friendly fraud occurs when a cardholder authorizes a transaction then disputes the charge. There are several reasons why friendly fraud has increased dramatically over the past several years, with the main reason being lack of memory of purchases made digitally. In many cases, members will remember making purchases at a retail location, but may not remember an online purchase made. Another reason for the increase in friendly fraud is due to the cardholder not recognizing a merchant’s transaction information as it is shown on their statement.

Over 90% of cardholders wish more transaction and merchant information was provided through their digital banking apps to assist in transaction recognition (“Purchase Clarity”). A member’s desire for more information includes a clear logo of the merchant, merchant name, and exact location of the transaction (including the option to contact the merchant for more information preventing a dispute from being filed). In “Chargeback Dispute Resolution Is Broken. Mastercard and Ethoca Are Fixing It.,” the PaymentsJournal highlighted a two-month study showing this data has helped both merchant and issuers prevent six million chargebacks.

At LSC, we work as a member of credit unions’ teams to implement and maintain successful payment solutions. If you have any questions regarding the information in this article or want to learn how LSC can help relieve the burden of fraud management, please contact us at 1-800-942-7124 or Tonja Wheatley