In 2020, 1 in 5 consumers shopped online for the first time and experienced a lack of transaction clarity. Issuers are facing a record level of friendly fraud claims due to a combination of cardholder miscommunication, user error, and access to basic merchant information in transaction records. High friendly fraud volume not only overwhelms back-office investigators, but it puts financial institutions at risk of account holders exploiting internal automatic write-off practices.
Identifying friendly fraud is difficult due to limited data, outdated practices, and faulty and unreliable reason codes. Dispute investigators are expected to examine more data points than ever to determine if true fraud occurred when the cardholder reports the transaction. They can’t keep up with the volume and types of complex attacks that are happening. Incidents of friendly fraud more than doubled between January and June of 2020. Between poor memory and the lack of essential merchant details on transaction records, friendly fraud has reached an all-time high.
The overall increase in chargeback volume is overwhelming financial institutions as the estimated number of chargebacks in 2021 will hit over 600 million. Friendly fraud undermines actual fraud victims and costs both merchants and issuing institutions valuable resources and revenue. When a cardholder files a fraud dispute with their issuing bank, the institution will more often than not trust that the claim is legitimate fraud to ensure a better cardholder experience. Too often, the front office staff classifies a merchant dispute as fraudulent to appease cardholders. Back-office workers frequently pay fraud cases that do not meet a rigorous burden of proof for denial. In addition, it takes a lot of research and evidence to deny a cardholder for friendly fraud, leaving issuers with a huge bill even if the customer is not committing friendly fraud. However, issuing banks can avoid many of the scenarios they face during friendly fraud claims.
Providing more thorough and transparent transaction information on bank statements may lead to avoiding as many as 25% of friendly fraud disputes. Issuers who are not dedicating time to delivering more specific information to their cardholders will continue to experience the brunt of handling chargebacks. While those issuers who practice transaction clarity ultimately resolve disputes before the chargeback process begins by providing information that customers are unsure about. The best way to combat friendly fraud is through transparency. The ability to deliver more information to consumers impacts the entire ecosystem of fraud and disputes.
For issuers, disputes are not a core part of their business, but they are a sizeable operational expense that can be avoided in many cases. The handling cost to investigate and resolve disputes ranges from $20-25 per unit, exceeding $500 million. Given that fraud and dispute shops are already struggling to manage intake volumes, mitigating causes for unnecessary disputes is more important than ever. Quavo Fraud and Disputes clients, on average, see a 50% reduction in operating costs over their current fraud and disputes process. Quavo’s innovative Disputes as a Service offeringTM eliminates up to 90% of the manual work required to manage fraud and disputes through our automated software, AI technology, and human intelligence services. Employ Quavo’s fraud and dispute management solutions to start automating for tomorrow, today.
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