Chargeback fraud is one of the major threats that haunt every industry from e-commerce and airline to finance. Due to its adverse effects like lost shipping, correction fees, and time wasted on disputes, this risk hinders the growth of businesses. Not just this, merchants also face reputational damage which directly leads to a downfall in the competitive market.
Realising the consequences chargebacks bring, address verification solution providers offer real-time customer identification. With automated digital onboarding services, they enable merchants to ensure buyers are present at the time of making a purchase. Furthermore, they can verify address more accurately by deploying geo-tagging analysis.
This article is a complete guide to chargebacks, their types, how they make merchants suffer, and ways online verification of address counter this increasing fraud.
Chargebacks and their Types – A Brief Walkthrough
Commonly known as disputed transactions, chargebacks refer to the refunding of payments over alleged disputes either made in cash or through credit cards. This reversal of funds can take several forms. For instance, it can be from an honest customer or fraudster to earn extra money.
In order to trick conventional address verification processes, imposters often use stolen details or credit card information to make a purchase. Upon delivery, they file for a chargeback which helps them illicitly gain funds and also keep the product.
Disputed transactions further comprise the following types:
- Friendly Fraud
Friendly or accidental fraud occurs when customers make a purchase and upon arrival of the package file for a chargeback. Primary reasons can be that they don’t recognise the purchase or refuse to make one. Fraudsters illicitly obtain credit cards and other identity details to make payments which is why customers are unable to track the transaction.
Friendly fraud often hinders online address verification as merchants are unable to identify the actual account holder.
- Legitimate Disputes
Not necessarily a type of fraud, legitimate disputes arise due to loopholes in merchants’ systems. An error can occur whilst verifying address due to outdated IDV controls or the shipping route may involve discrepancies. Fraudsters easily identify loopholes in merchants’ systems and exploit them to perform chargeback fraud.
- Criminal Fraud
By the end of 2023, chargeback costs are expected to reach $190 for a single $90 transaction. Due to the availability of advanced forgery techniques, criminal fraud has also become prominent. This type of chargeback scam refers to fraudsters’ use of stolen information. They use payment methods like credit cards to make a purchase. Stolen identity credentials also help them escape address verification.
Address Verification Systems and How they Help Merchants to Cut Down Fraud
Chargeback fraud leave a substantial negative impact on merchants’ businesses as they lead to additional financial loss, customer drop-off, and reputational damage. After affecting 75% of e-commerce businesses in 2021, this threat is also projected to cost merchants around $100 billion by the end of 2023. Chargeback fraud not just brings reputational damage and financial loss but also pushes retailers towards severe legal consequences.
Merchants can face store closure or land on Terminated Merchant File (TMF) which will completely restrict their operations. In all this fallout, conventional address verification systems equally add in as they leave enough room for fraudsters. Therefore, merchants need more than just security checks at digital onboarding. They should integrate online address verification solutions to identify and prevent chargeback fraud.
The next section further covers common ways how online address verification cross-identify customers and offers additional security.
Automation of Systems
IDV solutions enables merchants to validate address more accurately as they automate digital onboarding and customer onboarding by deploying AI-powered algorithms. They check real-time presence of buyers through selfie-based identification. It further helps authenticate transactions by asking for supporting evidence that contains address details like ID cards, utility bills, and credit card statements.
Cuts Out Additional Costs
The chance of discrepancies are higher whilst manually verifying an address. However, merchants can reduce additional risks by establishing AI-powered AVS. Integration of automated security checks during digital onboarding not only helps them reduce the cost involved during manual address verification but also overcomes additional correction charges.
AVS not only verify address by analysing provided information but also cross-check customer details across global registers and e-commerce databases. This way, merchants can also identify risks associated with foreign customers, validate their location, and ensure accurate deliveries.
Merchants might not overcome fraud completely but can deter fraudsters’ attempts by deploying advanced address verification solutions. With AI-powered algorithms, they can predict customer behaviour, ensure their real-time presence, and cross-check locations for additional security. By deploying geo-tagging merchants can also access the accurate whereabouts of buyers and reduce failed deliveries. Hence, automated verification of address is merchants’ solution to combat chargeback fraud.