Merchants expect that payment card fraud will migrate to e-commerce as the U.S. gets more protection at the physical point of sale through EMV chip cards. That means chargebacks, already a problem in physical retail, will escalate in e-commerce as well.
Heartland Payment Systems has established a referral agreement with e-commerce payment and risk management provider Verifi Inc. to provide its merchants access to risk analysis tools to limit e-commerce chargebacks.
"Overall, chargebacks are a $40 billion problem annually, and this is growing as more players come into the payments arena," said Chris Marchand, vice president of new business development at Verifi.
To complicate matters, companies such as Apple, Google and Samsung are developing new and unfamiliar payment options for merchants to accept, Marchand said. "So there is going to be more fraud and merchants will need help addressing the challenges they face regarding chargebacks."
Technology continues to advance to protect merchants against in-store chargebacks.
Alibaba is deploying a new approach to limit those chargebacks through product coding that would help merchants identify when and where an item was purchased, thus thwarting a common type of fraud in which criminals who stole items bring them back to another store to receive cash on a return.
Industry experts have been predicting significant advancements in handling or preventing chargebacks this year, including the potential that banks would introduce fees for consumers who make a chargeback claim and lose the case.
The Oct. 1 liability shift for conversion to EMV leaves many of Heartland's merchants with physical point of sale systems facing numerous tasks to have their systems ready. But those who also have an online presence need chargeback protection at the front and back ends of the process.
Chargebacks may stem from the use of stolen payment cards or from friendly fraud in which consumers purchase an item and simply deny ordering it. In other cases, parents may seek payment stops on cards that their children used without permission.
Verifi can help merchants on the front end before it becomes a disagreement between the consumer, merchant and the issuing bank; and on the back end by representing the merchant to the issuer, processor or acquirer, Marchand said.
"Chargeback representment rules are always changing," Marchand added. As such, a merchant undertaking that task needs a lot of time, effort and money to have a team that is always educated on all of the rules and regulations, Marchand said.
Receiving chargebacks is costly, but presenting them in an efficient manner can cost a merchant more than trying to fight chargebacks, Marchand said.
By representing the merchant in that process, Verifi is "taking the heavy lifting off the merchant plate," Marchand added.
Trying to reduce the number of chargebacks through the representment process is important for merchants because it allows them to make the case that the transaction was legitimate, Julie Conroy, research director and fraud expert with Boston-based Aite Group.
"A lot of firms out there do the representment piece, and if they get enough of a success rate, the return on investment works for the merchant," Conroy said.
It is especially vital in transactions for digital goods or other card-not-present transactions because the provider uses a formula to determine which transactions are best to fight and which ones might really be a lost cause, Conroy added.
"A company like Verifi can do their analytics against that to figure out how to optimize that success rate," Conroy said.
Bolstering card-not-present fraud prevention and establishing a successful chargeback representment program are "on the radar screen of every acquirer," Conroy said.
Los Angeles-based Verifi uses its cardholder dispute resolution network to address chargeback risks. The network links directly to card-issuing banks, providing a merchant with information before a chargeback occurs that could help resolve issues with customers.
The network is also helpful because many consumers bypass the merchant and go directly to the issuing bank to dispute a charge on a payment card statement, Marchand said.
Verifi deploys an "intelligence suite" of fraud information that helps a merchant know more about the consumer through device IDs, Internet Protocol addresses and other data.
"It helps the merchant better understand if the cardholder, the card or the device has been used fraudulently in the past," Marchand said.
Verifi fully manages the service for merchants or provides a self-service merchant portal, covering both fraud and non-fraud related chargebacks. Verifi says it processes more than $20 billion transactions annually and serves more than 5,500 accounts globally. The company has provided its services since 2005.