5 Trends That Will Impact Merchants and Issuers
by Steve Durney
Seeing into the future is impossible. Unfortunately, for those whose job it is to fight fraud and chargebacks, that’s exactly what we must attempt to do. The alternative is getting caught flat-footed and finding ourselves unprepared for new and unique threats and challenges to our business.
What’s more, the payments and ecommerce industries are constantly changing and evolving at a breakneck speed — making predicting the future even more difficult. Despite all this, there are developing trends and technologies that we think are particularly noteworthy. So, without further ado, here are five things we think merchants and issuers should keep an eye on in the months and years ahead:
1. The Internet of Things (IoT) sparks more unauthorized purchases — and ultimately disputes
All sorts of home gadgets, from TVs to vacuum cleaners to smart speakers, are being hooked up to the Internet — as well as the cars we drive. Many of these connected devices make it easier than ever for people to accidentally buy things. But while accidental purchases are a concern, an even bigger problem associated with IoT is likely to be unauthorized purchases made using through these devices that will lead to cardholder disputes.
2. “Friendly” fraud problem becomes even nastier
We’ve written extensively about the recent uptick in friendly fraud (when consumers wrongly dispute legitimate card purchases — such as those made unknowingly by another household member or due to buyer’s remorse). Many factors are likely to add fuel this trend. These include the rising ease through which cardholders can dispute transactions (mobile banking, etc.), the continuing growth of ecommerce, the increasing popularity of digital goods and services as well as unauthorized purchases from the nascent IoT.
3. Banks enhance customer experience for consumers
We expect financial institutions will increasingly look to win over customers through the experiences they offer. We’re seeing banks introduce cafes and open retail branches with inviting amenities. Others are making the online and mobile experiences more customer-friendly. For example, a well-known global bank has made card disputes easier than ever by letting consumers dispute pending transactions via its mobile app. While an easy-dispute process makes customers happy, merchants and issuers can expect an uptick in purchase disputes and the associated costly chargeback process.
4. Customers become more engaged in fraud prevention
One way issuers are trying to reduce disputes is by enlisting customers’ help to prevent fraud. 3D Secure, for example, is a technology offered by many major card issuers that allows cardholders to use two-factor authentication when making purchases from participating retailer’s web sites. After the cardholder enters their card information, they must enter a unique PIN or a code to complete the transaction. This security mindset is promising and suggests people want to be more proactive.
5. New types of identity theft take off
Now that most payment cards have chips, thieves are seeking the path of least resistance. Synthetic identity fraud has been one of the fastest-growing forms of identity theft. Synthetic identity theft is when fraudsters make up new identities by stealing a piece of someone’s personal data, such as their Social Security number, but then use it under a fictitious name. Recovering synthetic fraud losses is extraordinarily difficult because it’s very hard to track down fraudsters who use made-up identities.
Preparing for the changes ahead
Many of these trends point to a surge of cardholder disputes and chargebacks in the coming months and years — whether from friendly or legitimate fraud. Merchants and issuers can take actions to be ready themselves for this surge by embracing collaboration-driven technologies. Ethoca Eliminator, for example, is a solution that allows merchants to share in-depth transaction information with issuers and cardholders in real time — while preventing disputes, stopping friendly fraud and eliminating the need for costly and time-consuming chargebacks.