Security & Fraud

How To Battle The Friendly (And Not So Friendly) Fraudster? APIs, Rich Data And Collaboration


Whether friendly fraud or genuine fraud, for merchants and card issuers, the impact is growing and comes with a host of negative consequences for the entire ecosystem — especially customers.

Lost revenues and chargebacks. Friction. Bad customer experiences. And sometimes — in the case of friendly fraud — relationships severed altogether.

To that end, on Thursday (March 15) Ethoca debuted its Integrated Solution Suite, which spans offerings across Ethoca Eliminator, Ethoca Alerts and Enhanced Representments.

In a press release, the company said its “first line of defense” is the Eliminator solution, which offers card issuers on-demand access to a deep pool of information via merchant intelligence tied to the consumer — ranging from shopping cart details to IP addresses to a consumer’s purchase history.

Those details will be offered up the moment the cardholder questions a transaction, whether on the phone or via mobile app. Armed with information and clarity, cardholders can better recognize their own transactions — whether the intention to dispute is innocent, or whether it is malicious.

In an interview with PYMNTS, Keith Briscoe, Ethoca’s chief marketing officer, said that such knowledge can go a long way in eliminating friction in commerce. Cards stay active, rather than being canceled, and merchants get the dual benefit of avoiding chargebacks while preserving transaction revenues. Just as crucially, for card issuers, the customer purchase experience can continue uninterrupted, and fraud models will improve as “false claims” are gradually winnowed out of the system.

Among the company’s claims: Up to 90 percent of “chargebacks from genuine fraud, friendly (or first-party) fraud and false claims” can be mitigated. Among other stats offered by the company: Early results — via a pilot with a top-five U.S. card issuer and a major digital goods merchant — show Ethoca Eliminator has deflected 38 percent of disputes that might otherwise have gone down the path of damaging chargebacks. Briscoe said this use case is really the tip of the iceberg and shows the potential for a set of rails that carries increasingly rich intelligence back and forth between the card issuer and the merchant.

The new suite bows a month ahead of Visa’s new network rules that seek to streamline dispute resolution and boost identification of chargebacks related to fraud — both intentional and friendly fraud (where customers claim they do not recognize charges).

The Visa Claims Resolution (VCR) change adds a few new wrinkles to the process. What have heretofore been two dozen chargeback reasons is now reduced to a few, liability for most fraud and authorization disputes will be handled in real time based on automated decision-making and chargeback reason code 75 (“Do Not Recognize”) is going away. The amount of time to respond to chargebacks — the actual window of time — is being compressed, and the single chance for representment is critical for a merchant who chooses to battle a chargeback, he said.

Briscoe added that “from a readiness perspective … while the majority of card issuers and merchants are nearly prepared, with any mandate this significant, you can expect there will [be] some period of adjustment before it’s working seamlessly. And chargebacks will obviously continue to exist, so solutions like Ethoca’s are a necessary complement to improvements being made to improve and streamline the chargeback process.”

On the subject of false declines, Briscoe noted that the industry is rejecting significantly more good transactions than there are cases of actual fraud. Javelin estimates that for every dollar of an actual confirmed fraud, $13 of legitimate transactions are falsely rejected. Information, along with communication, can be murky, said the executive, contributing to a confusing customer experience.

“Keep in mind, often a customer does not know why they’re getting declined, so they don’t know if they are being declined by the merchant or the card issuer in many cases,” he told PYMNTS.

Relationships can be damaged on the spot. With false-positives, the cardholder may opt to use a different payment card or try a different eCommerce website; 39 percent will abandon the transaction altogether.

In the case of a traditionally defined friendly fraud incident, explained Briscoe, cardholders call their bank or dispute by digital app, contending that they didn’t perform the transaction. In many cases, the issuer has no choice but to accept cardholders at their word.

“So, what you have here, of course, is a legitimate transaction that is being reported as fraud, and that drives the false decline experience. In some cases, with major digital goods brands, up to 90 percent of their fraud is friendly fraud,” he said, which has an outsized impact on fraud detection models. The net result is that card issuers end up unintentionally declining perfectly good transactions.

With the integrated suite from Ethoca, Briscoe said, amid calls by the cardholder disputing the charges, card issuers can tap into rich data at the individual level while on the phone with the customer. The data sync comes via API integration into the merchant system. A simple and quick conversation may show a misunderstanding on the part of the customer, who then might accept responsibility for the transaction. And the level of detail newly at the hands of the issuer may dissuade malicious intent at the outset — reducing more hostile forms of so-called “friendly fraud.”

Beyond that first line of defense, other components of the suite include Ethoca Alerts — the company’s flagship product introduced in 2010.

Briscoe explained that if a customer still insists on disputing the transaction, card issuers participating in Ethoca’s network can offer up fraudulent or disputed transactions to Ethoca. The company’s merchants can stop the fulfillment of goods and services and refund the transaction to avoid the chargeback.

The third and final line of defense is Enhanced Representments. Briscoe told PYMNTS that merchants challenge the transaction with an eye on recovering revenue, done through automated, yet judicious, means that preserve the balance between card issuers and merchants.

“Regardless of rule processing changes, there are still going to be chargebacks,” he said. “Merchants are going to have to deal with the pain that those chargebacks create, and so will issuers. Dealing with these disputes as early as possible in the process — before they even become an official claim — is the key.”


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The Which Apps Do They Want Study analyzes survey data collected from 1,045 American consumers to learn how they use merchant apps to enhance in-store shopping experiences, and their interest in downloading more in the future. Our research covered consumers’ usage of in-app features like loyalty and rewards offerings and in-store navigation, helping to assess how merchants can design apps to distinguish themselves from competitors.


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