By Gabe McGloin, Head of International Merchant Sales and Business Development at Verifi
As e-commerce continues to grow in popularity, so does the risk of fraud – particularly as card-not-present (CNP) payments are on the rise. Indeed, the most recent statistics from the UK Cards Association (UKCA), found that the volume of debt and credit card purchases in the last ten years has more than doubled, because consumers are using more seamless and contactless methods of payment.
In addition to growth in CNP sales, contactless and mobile app payments have also led to further diversification of payment methods. According to the UKCA, of the 16.4 billion purchases made in 2016, 39 per cent were a combination of contactless and online payments, an increase of 15 percent year-on-year.
Ease of payment for customers is obviously considered a good thing for merchants, shortening the path to purchase. But it also raises a challenge for banks, as they are processing more and more requests for chargebacks.
What Are Chargebacks?
If you have ever experienced a fraudulent transaction in your bank account, it is likely that you have used the chargeback process as a means to recover the funds.Chargebacks are essentially the reversal of an outbound transfer of funds from a consumer’s bank account, line of credit, or credit card. They occur for various reasons, such as when a consumer returns a product but did not receive credit from the merchant. Other causes include non-receipt of merchandise, quality issues, or a merchant’s misrepresentation in marketing materials.
Chargebacks may also be referred to as disputes or claims and can only be issued in accordance with the rules and regulations set by the card schemes or payment brands. Rules differ between payment schemes such Visa and Mastercard versus alternative payment methods, i.e. Paypal.
The chargeback process serves to protect and return funds to a consumer.Credit card chargebacks were initially established as a method of consumer protection. This was due to concern over the ease of credit card theft and fraud.
A chargeback is initiated when a cardholder calls their card-issuing bank, rather than the merchant, to dispute a transaction. Cardholder disputes that result in chargebacks occur for reasons such as vague descriptors on bank statements, unintentional use of a card, and fraudulent activity. Often, customer confusion over what may be a valid transaction can result in unintentional “friendly fraud”.
As payment methods and marketing channels have become more diverse, there is more risk of customer confusion. As a result,instances of friendly fraud may increase. Friendly fraud most frequently occurs when a customer makes a CNP purchase, receives the good or service, and then contacts their card-issuing bank to dispute the charge – often claiming they did not make the purchase. This can be due to confusion over their billing statement, as charges are not always labelled clearly and the customer may have used a different payment method from what they remember, or they simply do not remember making the purchase at all.
Another aspect of friendly fraud occurs when a customer makes a dispute claim that seems believable, but in fact they are manipulating the system to recover funds on an otherwise legitimate purchase. With e-commerce continuing to expand, it’s vital that merchants of both big and small businesses be aware of how to spot friendly fraud and what steps to take to prevent it.
The ease of using the chargeback process has prompted a rise in customer staking advantage of the system to commit fraud and theft against merchants. It is therefore vital that merchants understand the chargeback process and how to prove a transaction has taken place, that goods or services have been delivered, in order to mitigate the risk of fraud and disputes.
The Chargeback Process
In order to fight fraudulent chargeback claims, it helps to understand the chargeback process – for most payment schemes the steps are as follows:
- The customer contacts their card-issuingbank and asks for a charge to be reversed.
- The bank reviews the request. If the request is considered valid based on the rules, a provisional credit is applied, or the bank may decline the request if there is not sufficient evidence to support the claim.
- When a provisional credit is given to the customer, the issuing bank will initiate a financial transaction using the card scheme network that involves collecting the funds from the merchant’s acquiring bank.
- At this point, merchants should be notified by their bank that a chargeback has been filed. The investigation into the chargeback really begins.
- Merchants will be asked to provide detailed documentation as evidence to help fight the chargeback, if they choose to do so. Such documentation includes: proof of purchase, transaction receipt, customer authorisation of the purchase,proof of posted refund and return policy, any details from conversations, emails, chats with the customer service team, saleconfirmation emails, and approval of the charge to the credit card. This information can be challenging to collect, but it is very important when proving that the chargeback is in fact chargeback fraud. If the merchant does not provide the compelling evidence within the time frame specified by the card scheme, they essentially “accept” the chargeback liability.
- If the merchant wins the case, based on the evidence provided, the customer will be held responsible for payment on the purchase. If the merchant loses, they will be expected to cover the cost of the chargeback and pay for any fees imposed on them by their bank and the credit card association.
- As of the 14th April 2018, Visa’s Claims Resolution (VCR) puts more pressure on merchants to get disputes resolved in a shortened time frame of 30 days. Previously, chargeback claims could take months to resolve,and merchants had more time to gather the documentation and evidence needed to fight the chargeback. It is vital that merchants have all their documentation in order, and work closely with their banks to ensure claims are resolved within the new VCR time frame.
As more payment methods become available to facilitate faster CNP transactions, security protocols and capture technologies can become outdated. To this end, e-commerce fraud has grown dramaticallyacross the board. It is imperative that merchants are prepared to quickly identify fraudulent chargeback activity from genuine claims, and ensure they have efficient processes in place to prevent and respond to disputes.
Merchant vigilance must remain a staple in customer service best practices to help ensure revenue protection and customer retention. Additionally, innovations in the payment industry – such as solutions that facilitate better and more timely exchange of pertinent transaction or dispute data between the merchant and the issuer – can further reduce or resolve disputes more efficiently, minimize the negative financial impacts of fraud and friendly fraud, and help retain more sales.
UK might need negative rates if recovery disappoints – BoE’s Vlieghe
By David Milliken and William Schomberg
LONDON (Reuters) – The Bank of England might need to cut interest rates below zero later this year or in 2022 if a recovery in the economy disappoints, especially if there is persistent unemployment, policymaker Gertjan Vlieghe said on Friday.
Vlieghe said he thought the likeliest scenario was that the economy would recover strongly as forecast by the central bank earlier this month, meaning a further loosening of monetary policy would not be needed.
Data published on Friday suggested the economy had stabilised after a new COVID-19 lockdown hit retailers last month, while businesses and consumers are hopeful a fast vaccination campaign will spur a recovery.
Vlieghe said in a speech published by the BoE that there was a risk of lasting job market weakness hurting wages and prices.
“In such a scenario, I judge more monetary stimulus would be appropriate, and I would favour a negative Bank Rate as the tool to implement the stimulus,” he said.
“The time to implement it would be whenever the data, or the balance of risks around it, suggest that the recovery is falling short of fully eliminating economic slack, which might be later this year or into next year,” he added.
Vlieghe’s comments are similar to those of fellow policymaker Michael Saunders, who said on Thursday negative rates could be the BoE’s best tool in future.
Earlier this month the BoE gave British financial institutions six months to get ready for the possible introduction of negative interest rates, though it stressed that no decision had been taken on whether to implement them.
Investors saw the move as reducing the likelihood of the BoE following other central banks and adopting negative rates.
Some senior BoE policymakers, such as Deputy Governor Dave Ramsden, believe that adding to the central bank’s 875 billion pounds ($1.22 trillion) of government bond purchases remains the best way of boosting the economy if needed.
Vlieghe underscored the scale of the hit to Britain’s economy and said it was clear the country was not experiencing a V-shaped recovery, adding it was more like “something between a swoosh-shaped recovery and a W-shaped recovery.”
“I want to emphasise how far we still have to travel in this recovery,” he said, adding that it was “highly uncertain” how much of the pent-up savings amassed by households during the lockdowns would be spent.
By contrast, last week the BoE’s chief economist, Andy Haldane, likened the economy to a “coiled spring.”
Vlieghe also warned against raising interest rates if the economy appeared to be outperforming expectations.
“It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
Higher interest rates were unlikely to be appropriate until 2023 or 2024, he said.
($1 = 0.7146 pounds)
(Reporting by David Milliken; Editing by William Schomberg)
UK economy shows signs of stabilisation after new lockdown hit
By William Schomberg and David Milliken
LONDON (Reuters) – Britain’s economy has stabilised after a new COVID-19 lockdown last month hit retailers, and business and consumers are hopeful the vaccination campaign will spur a recovery, data showed on Friday.
The IHS Markit/CIPS flash composite Purchasing Managers’ Index, a survey of businesses, suggested the economy was barely shrinking in the first half of February as companies adjusted to the latest restrictions.
A separate survey of households showed consumers at their most confident since the pandemic began.
Britain’s economy had its biggest slump in 300 years in 2020, when it contracted by 10%, and will shrink by 4% in the first three months of 2021, the Bank of England predicts.
The central bank expects a strong subsequent recovery because of the COVID-19 vaccination programme – though policymaker Gertjan Vlieghe said in a speech on Friday that the BoE could need to cut interest rates below zero later this year if unemployment stayed high.
Prime Minister Boris Johnson is due on Monday to announce the next steps in England’s lockdown but has said any easing of restrictions will be gradual.
Official data for January underscored the impact of the latest lockdown on retailers.
Retail sales volumes slumped by 8.2% from December, a much bigger fall than the 2.5% decrease forecast in a Reuters poll of economists, and the second largest on record.
“The only good thing about the current lockdown is that it’s no way near as bad for the economy as the first one,” Paul Dales, an economist at Capital Economics, said.
The smaller fall in retail sales than last April’s 18% plunge reflected growth in online shopping.
BORROWING SURGE SLOWED IN JANUARY
There was some better news for finance minister Rishi Sunak as he prepares to announce Britain’s next annual budget on March 3.
Though public sector borrowing of 8.8 billion pounds ($12.3 billion) was the first January deficit in a decade, it was much less than the 24.5 billion pounds forecast in a Reuters poll.
That took borrowing since the start of the financial year in April to 270.6 billion pounds, reflecting a surge in spending and tax cuts ordered by Sunak.
The figure does not count losses on government-backed loans which could add 30 billion pounds to the shortfall this year, but the deficit is likely to be smaller than official forecasts, the Institute for Fiscal Studies think tank said.
Sunak is expected to extend a costly wage subsidy programme, at least for the hardest-hit sectors, but he said the time for a reckoning would come.
“It’s right that once our economy begins to recover, we should look to return the public finances to a more sustainable footing and I’ll always be honest with the British people about how we will do this,” he said.
Some economists expect higher taxes sooner rather than later.
“Big tax rises eventually will have to be announced, with 2022 likely to be the worst year, so that they will be far from voters’ minds by the time of the next general election in May 2024,” Samuel Tombs, at Pantheon Macroeconomics, said.
Public debt rose to 2.115 trillion pounds, or 97.9% of gross domestic product – a percentage not seen since the early 1960s.
The PMI survey and a separate measure of manufacturing from the Confederation of British Industry, showing factory orders suffering the smallest hit in a year, gave Sunak some cause for optimism.
IHS Markit’s chief business economist, Chris Williamson, said the improvement in business expectations suggested the economy was “poised for recovery.”
However the PMI survey showed factory output in February grew at its slowest rate in nine months. Many firms reported extra costs and disruption to supply chains from new post-Brexit barriers to trade with the European Union since Jan. 1.
Vlieghe warned against over-interpreting any early signs of growth. “It is perfectly possible that we have a short period of pent up demand, after which demand eases back again,” he said.
“We are experiencing something between a swoosh-shaped recovery and a W-shaped recovery. We are clearly not experiencing a V-shaped recovery.”
($1 = 0.7160 pounds)
(Editing by Angus MacSwan and Timothy Heritage)
Oil extends losses as Texas prepares to ramp up output
By Devika Krishna Kumar
NEW YORK (Reuters) – Oil prices fell for a second day on Friday, retreating further from recent highs as Texas energy companies began preparations to restart oil and gas fields shuttered by freezing weather.
Brent crude futures were down 33 cents, or 0.5%, at $63.60 a barrel by 11:06 a.m. (1606 GMT) U.S. West Texas Intermediate (WTI) crude futures fell 60 cents, or 1%, to $59.92.
This week, both benchmarks had climbed to the highest in more than a year.
“Price pullback thus far appears corrective and is slight within the context of this month’s major upside price acceleration,” said Jim Ritterbusch, president of Ritterbusch and Associates.
Unusually cold weather in Texas and the Plains states curtailed up to 4 million barrels per day (bpd) of crude production and 21 billion cubic feet of natural gas, analysts estimated.
Texas refiners halted about a fifth of the nation’s oil processing amid power outages and severe cold.
Companies were expected to prepare for production restarts on Friday as electric power and water services slowly resume, sources said.
“While much of the selling relates to a gradual resumption of power in the Gulf coast region ahead of a significant temperature warmup, the magnitude of this week’s loss of supply may require further discounting given much uncertainty regarding the extent and possible duration of lost output,” Ritterbusch said.
Oil fell despite a surprise drop in U.S. crude stockpiles in the week to Feb. 12, before the big freeze. Inventories fell by 7.3 million barrels to 461.8 million barrels, their lowest since March, the Energy Information Administration reported on Thursday. [EIA/S]
The United States on Thursday said it was ready to talk to Iran about returning to a 2015 agreement that aimed to prevent Tehran from acquiring nuclear weapons. Still, analysts did not expect near-term reversal of sanctions on Iran that were imposed by the previous U.S. administration.
“This breakthrough increases the probability that we may see Iran returning to the oil market soon, although there is much to be discussed and a new deal will not be a carbon-copy of the 2015 nuclear deal,” said StoneX analyst Kevin Solomon.
(Additional reporting by Ahmad Ghaddar in London and Roslan Khasawneh in Singapore and Sonali Paul in Melbourne; Editing by Jason Neely, David Goodman and David Gregorio)
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