Verifi, a Visa Solution, Explains Differences between First-Party and Friendly Fraud when

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Los Angeles based Verifi, a company that claims it has been leading the dispute management and payment protection sector for sellers and issuers since 2005, notes that by now, sellers may have realized that the consumer trend “away from in-store shopping and toward e-commerce is not going to reverse any time soon.”

The Verifi team writes in a blog post that a recent study reported that “44% of global consumers now purchase physical goods online.”

Verifi, which is a Visa solution, also noted that there’s now a lot of online purchasing taking place which means many businesses are moving their operations online. The company questions whether CNP sellers are developing the appropriate dispute strategies in order to manage this new payments landscape.

Verifi also asks whether service providers are deploying the right technology to address changing consumer requirements.

Verifi adds:

“Do they have the right processes in place? And are they testing to make sure their dispute strategy is effective? Knowing the answers to these questions is essential for any CNP business that wants to minimize the impact of disputes.”

The company also mentioned that whatever tactics you may have implemented to lower the risk of disputes, it’s best “to begin by examining them and their effectiveness.” Although you might have best-known or best-available tools to mitigate the risk of fraud, “no matter what efforts you make in the early part of the transaction life cycle, first-party fraud or friendly fraud can be seen as a path that some bad actors take to game the system,” Verifi reveals.

When a client commits first-party fraud or friendly fraud, they’re disputing a valid transaction they may not recognize – “or claim not to,” the company explains while pointing out that in both cases, “the purchases are legitimate.”

Verifi further explains that the difference with the latter case is that these clients are “intentionally challenging legitimate purchases as fraudulent to regain funds.” In fact, in a recent survey report, “16% of consumers who were contacted admitted to perpetrating friendly fraud – adding a cautionary note that this number is likely conservative,” Verifi noted. It also mentioned that this statistic “sends a clear message that sellers need to apply dispute management tactics in the post-purchase environment to reduce friendly fraud and the resulting disputes.”

Verifi recommends that we begin by looking for gaps in our payment processes “with vulnerabilities to fraud and disputes.” The company notes: “Are you using authentication tools to stop fraud and defer liability? Are you identifying disputes stemming from dissatisfaction with products or services? Are you collecting the best evidence for dispute responses and revenue recovery?”

Verifi suggests finding the holes and “filling them before stress-testing your strategy.” Every dispute management strategy “is unique, and each seller has specific needs and goals,” the company explains.

Verifi also shares tactics that can help with testing and strengthening your dispute strategy “to better protect your business throughout the payments life cycle”:

  • Pre-Authorization: At the pre-authorization stage, the seller’s objective is “to find the right balance between fraud prevention and authorizations to meet revenue targets.” Different categories of sellers will “have different business needs, so it’s important for each seller to determine the mix of fraud prevention and authorizations that works best for their business and test against it.” For instance, high-risk sellers with subscription-based businesses or that deal in intangible goods “may experience larger dispute volume.” These businesses “may consider decreasing their fraud prevention measures to allow more authorizations, thereby spreading the cost of disputes over a larger revenue figure.”
  • Post-Transaction: After the customer has made their purchase, sellers “can sometimes feel powerless to prevent a dispute, should the customer choose to file one.” Fortunately, there are actions sellers “can take and solutions to reduce risk provided by the right partner. The first tactic is post-purchase outreach and communication.” Follow up any transaction “with a confirmation email, tracking information, and/or delivery status.” To ensure your communications are effective, “check email open rates, click-through rates, and A/B test subject lines.” Additionally, “collaborate with your customer service to capture their findings on customer responses and success metrics.”

Verifi recommends that sellers need to be proactive regarding their communicating service policies for returns/refunds and T&C to clients by including these policies “in post-transaction communications or even during checkout as a condition for completing an order.”

But if you decide to surface your policies, they need to be “clearly displayed on your website and easy to find.” Verifi also notes that measuring the amount of traffic leading to your policy pages can “indicate the potential for their visibility to your customers.”

If traffic to policy pages is fairly low when compared to the amount of customer service interaction on issues related to service policies, then sellers might have to “increase visibility on their policy web pages to help reduce operational strain.”

Verifi further noted:

“The goal is to convince your customer to work with you instead of their bank if there’s an issue with the customer’s transaction. When the customer does contact you, ensure to have processes in place to offer a refund or credit voucher to save the relationship. Another tactic is to take advantage of seller-issuer collaboration technologies.”

Verifi also mentioned that these solutions can allow sellers to engage with fast responses to prevent the dispute, offer a viable resolution, or accept liability “to potentially fight the dispute later.”

Such collaboration solutions “involve a level of automation to help identify transaction information to prevent a dispute at inquiry, as well as provide a quick resolution by refund, if warranted, stopping a chargeback from ever occurring,” Verifi explained.

The company’s blog post added:

“When it comes to chargebacks, sellers are simply leaving money on the table. Chargebacks don’t have to be accepted as just part of doing business. If you know that you’ve made a valid sale, then it’s worth the effort to recover revenue that you’ve rightfully earned. With the right resources and know-how, an in-house dispute management team can build effective dispute responses to recover funds.”

But third-party services are able to do the heavy lifting for you, by employing “expert tactics” to aggregate dispute source data, put together the best-case evidence, and “prepare and deliver dispute responses in the proper time frame.”

Verifi also noted that when deciding whether to represent in-house or outsource, sellers need to reliably measure operational cost “against the cost of a third-party service.” Sellers also need to determine or “calculate human capital, benefits, and overhead operational costs – not just payroll – before making a decision.”

Verifi added that sellers should also “consider their overall representment rate.” For instance, “what is the percentage of chargebacks that are being represented out of the total number of chargebacks received?”

Verifi also mentioned that by reviewing the total number of chargebacks, there “may be opportunities to increase revenue recovery by representing more cases.” Additionally, we may want to  “consider the net win rate of your chargebacks vs. your gross win rate.” The company points out that clients can resubmit a dispute “even after successful revenue recovery.”

Verifi further notes that whether your dispute management is carried out in house or by a partner, these tips could assist with maximizing your recovery wins:

  • A/B test response packages with multiple acquirers for insights on which formats work best for response wins.
  • Use reports from dispute case management tracking to understand fraud and reason codes that might cause most common dispute cases, then update operations to prevent them.
  • From your CRM and dispute source data, identify customers who are disputing transactions and why. If necessary, block from future transactions.
  • Refine Your Dispute Strategy, Test Again

Verifi also noted that your dispute strategy will “never be finished.” As long as the payments landscape keeps evolving or changing, your dispute strategy has to be ready to adapt or accommodate those developments, the company explained.

This means constant or regular review of your tactics, Verifi noted.

(Note: to learn more about transaction disputes, check here.)





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