Retailers Brace for Friendly Fraud’s New Seasonal Surges

To quote that old song: “To everything there is a season.”

And payments, there are seasons for disputes.

In an interview with Karen Webster, Verifi CEO Sara Craven said that the summer looms as fertile ground for disputed transactions as companies struggle to keep up with demands amid the great reopening.

Airlines, hotels and vacation rental platforms are grappling with a tidal wave of bookings, overbookings, and in some cases, cancellations, such as labor shortages and weather prove to be stubborn headwinds.

And there are other challenges with that seasonality too: Consumers change up where they spend their funds, which is leading to a new seasonality in friendly fraud.

Summer to Heat Up … Fall Chargebacks 

It used to be the case that disputes and chargebacks rose in the wake of retail’s key shopping season — most notably Black Friday into the end of the year. However, eCommerce has changed that seasonal picture and has even altered the industries that are affected.

Consider the fact that between 2020 to 2021, card not present (CNP) transactions surged by 34% during the pandemic. Drill down a bit, and some patterns emerge, noted Craven, tied closely to the great reopening of various economies and the mass movement to get out and about.

“You’ll see a lot more disputes with cruise ships, entertainment and travel companies,” Craven said. The ripple effects of various macro headwinds across verticals are palpable and extend beyond travel.

See more: Spike in Friendly Fraud Triggers Review of Chargeback Mechanisms

Craven told Webster that “the labor shortage situation is becoming a serious issue for brick-and-mortar.” It takes much longer to eat a meal at a restaurant plagued by staffing constraints than it does to order and get a meal from GrubHub, so cancellations are growing and will continue to increase with a bit of a lagging effect.

The disputes, in at least some verticals such as travel, she said, will snowball at the end of the summer and into the fall. Consumers, after all, tend to look at their credit card statements at the end of the month and determine whether transactions are valid or not.

Even contractors are seeing some seasonality of disputes and payment issues, as homeowners have scrambled to get projects done.

This is not to say that disputes will overtake, or be on par with, the actual transactions themselves. Many of Verifi’s merchants have had to rethink their various business models, including how they offer and facilitate cancellations and refunds.

Those policies, as crafted by at least some merchants, have become more generous, Craven said, and as a result, disputes have trailed transaction increases slightly, growing by 29% against that CNP surge of 34%.

Friendly Fraud 

Friendly fraud (aka. first-party misuse)  will likely ride the continued wave of CNP transactions and cancellations, Craven predicted. Friendly fraud is rampant — 39% of consumers have admitted taking part. Maybe they forgot about a transaction, or perhaps the payment was made by a family member. And in some cases, they may be trying to avoid paying for a legitimate transaction altogether.

With the kids home for the summer, friendly fraud will see a tailwind, she said — as they handle all manner of devices where digital cards are stored, where an errant push of a button results in money being spent in ways not discovered for weeks.

There’s a bit of silver lining here.

“Ten years ago, nobody even knew what friendly fraud was,” observed Craven. Companies were not conversant with the term, and now they most certainly are familiar with the practice.

But friendly fraud has spurred companies to be more proactive about helping consumers understand what’s on their bank statements and gain better insight into recurring charges, including what was bought when and where. Insight into transaction details is a potent weapon in helping friendly fraud and as Craven said, making it easier for consumers to keep track of what they’ve spent.

That’s why the merchant descriptors on credit card statements become so important to friendly fraud, and all too often those descriptors are not reflective of the business the merchant is in, where the merchants are (physically or online) and leave out critical details. In addition, platforms such as Verifi’s share enhanced transaction information with issuers and enterprise customers in a collaborative fashion.

See also: Report: Merchants Overestimate Their Own Dispute-Resolution Skills

As CNP and in-store spending are both poised to rise in the coming months, she said there’s one surety when it comes to chargebacks: “Seasonality is changing with the changing times.”