Payments 'concierge' mentality can lead to friendly fraud

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It’s not always easy to stay up-to-date on the constant, transformative changes confronting payments professionals. That can be a problem, as innovation without understanding creates vulnerabilities. Fraudsters can, in turn, exploit those weaknesses.

Payments is a fast-moving and dynamic environment. If we look at the beginning of the last decade, for instance, the way we conducted business would be almost unrecognizable. New technologies, standards, and practices have completely transformed digital payments.

Back in 2010, concepts like mobile commerce and BOPUS (buy online, pick up in store) were still experimental new ideas. Today, these and other relatively recent practices dominate the payments industry. The groundwork laid in the last decade will propel continued e-commerce growth into the 2020s and beyond.

Contemporary consumers have what we may call a “concierge” mentality. Through increased convenience and access to faster, more convenient payments, we’ve unintentionally retrained consumer expectations.

In their minds, consumers have largely rebranded card issuers less as payment facilitators, and more as concierge services. They expect issuers to operate at their convenience, and to simultaneously offer personalized experiences, stronger security, and faster resolutions to any issues. This isn’t always a problem; after all, most businesses seek to offer a higher standard of service to their customers. It becomes an issue, though, when consumer expectations rub up against existing policies and practices.

Catering to consumer demands for chargebacks without proper investigation or adjudication, for instance, unfairly impacts merchants. It’s not a reasonable demand, yet issuers often oblige for the sake of consumer loyalty.

Banks are, in effect, enabling chargeback abuse (a practice called “friendly fraud”). If this “blind-eye” approach continues to dominate, the bad behavior will only get worse.

I don’t want to give the impression that it’s all doom and gloom. There will be plenty of positive developments, like growth among small acquirers, and increased affiliate relationships.

These developments present new opportunities to conduct business, grow revenue, and increase efficiency and the level of service provided to consumers. There will be new challenges as well, though. If left unaddressed, these threats will subsume many potential gains for the industry. Here are five of the biggest developing threats that need to be addressed as soon as possible:

Open Banking Fraud. Connectivity between banks and third-party providers is uncharted territory. The kind of interoperability represented by the Revised Payments Services Directive (PSD2) may open up greater opportunities for data analysis and consumer customization, but could also lead to security breaches impacting multiple payments channels.

BOPUS Abuse. The BOPUS sales model is a big hit with consumers. They love the convenience of doing their shopping online, then simply heading to the store to pick up purchases. We expect BOPUS to lead to more fraud in 2020, though, as many locations don’t require consumers to show ID or a payment card at the time of pickup. This could lead to a surge in different abuses, from fraudsters imitating legitimate buyers, to consumers engaging in “cyber shoplifting.”

Loyalty Program Abuse. One might not assume that abuse of merchant loyalty programs would be a major problem. Remember, though, that loyalty points are largely equivalent to cash, while usually having far more lax security. A hacker can steal customers’ loyalty rewards like airline miles or hotel points with relative ease.

Travel Double-Dipping. We’ve seen several high-profile carrier collapses recently; Thomas Cook, Monarch, and Air Berlin are just a few of the big names to go under, and more are likely to follow. After each of these collapses, we see a spike in chargebacks and fraud ripple through the travel space. Some consumers manage to “double dip” on chargebacks by filing through their card issuer, and through insurance bonds.

Subscription Abuse. When customers take a “set it and forget it” approach to recurring subscription services, it’s inevitable that heightened chargeback requests will follow. But, with interest in subscription box services, meal prep, streaming, and other businesses based around recurring billing only set to grow, subscription abuse will be an increasingly prominent challenge.

It’s up to professionals in the payments space to mitigate these threats. The question: how?

There’s only so much we can do based on these broad forecasts. Breaking fraud trends up by decade can be useful, in that it helps us see how far we’ve come in a set period. The reality, though, is that the myriad cyber threats facing the market are constantly evolving. That’s why it’s best to take a comprehensive, adaptable approach from the beginning.

We should call for a multi-layered understanding of fraud on the part of merchants and banks. The more dynamic our approach, the better-suited it will be to withstand new and evolving threats. Developing solutions to mitigate both pre- and post-transactional threats based on hard, historical data is our safest bet. For merchants, this means embracing complimentary fraud detection tools that allow for more precise customization and adaptation over time as trends develop. For institutions, it means putting more emphasis on consumer education, case reviews, and fraud screening.

Of course, we’ll never be able to stop all fraud incidents. That said, without taking on this more dynamic and comprehensive approach, this decade will take fraud losses in the payments industry to new and frightening heights.

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