The European Commission (EC) recently revealed plans for regulatory reform that aim to increase EU member states’ economies by £308bn a year by stimulating cross-border ecommerce. Monica Eaton-Cardone, CIO and co-founder of chargeback fraud recovery company Global Risk Technologies, highlights the potential impact of these changes and the increased exposure to fraud and chargeback risk that merchants must prepare for by the end of 2016.

The EC has announced 16 proposals, which it aims to implement in the next 18 months, to try to eliminate barriers to online trade across Europe. From more affordable parcel delivery, to ending location-limited services, the proposals will encourage more accessible cross-border ecommerce. Current figures show that only 15% of people shop online from another EU country, which the EC plans to change with reformed regulations in a bid to move from 28 national markets into a more streamlined single digital economy called the ‘Digital Single Market’.

The proposals are good news for digital retailers in the European Union and will promote a more positive environment for ecommerce trade on the continent.

Not only will the ecommerce market across Europe benefit from an increase in trade volume, but the new proposals could also promote increased online spending. In the UK alone, online retail sales are predicted to reach £53.25bn in 2015 as ecommerce continues to boom. Unfortunately, as the opportunities and money within the market grow, so too does the attractiveness for fraudsters.

More customers bringing more spending power means a new wave of fraud and chargeback threats for merchants.

Monica Eaton-Cardone
Monica Eaton-Cardone

Chargeback Fraud (also known as “Friendly fraud”) remains a growing problem in ecommerce, with a growth rate of 41% over the last two years in Europe alone. Without equal attention on chargeback standards, forward-thinking initiatives aimed at promoting increased transactional growth may backfire in Europe due to imbalanced regulations surrounding this type of crime.

As more consumers are encouraged online in an effort to bolster ecommerce success, they will increasingly expose this current loophole, fraudulently claiming chargebacks on valid credit card transactions while merchants are burdened with rising liabilities and costs.  The end result is higher prices, reduced values, and the accidental creation of a new age of ‘Consumer Entitlement’.

The worry for merchants is that they often do not know about the problem until they receive a forced refund from their bank (i.e., a chargeback). In fact, 58% of cardholders do not contact the merchant at all – instead they file the dispute directly with the bank – and a staggering 86% of chargeback claims are actually fraudulently placed. If this trend continues then any gains merchants make as a result of the EC changes will be severely offset by financial and reputational damage from rising chargebacks.

To combat the risk of chargebacks, there are several steps that merchants can take to educate and protect themselves against the risks.

One of the main changes merchants can implement is to employ best practice processes such as maintaining delivery receipts and enhancing their customer service levels and contact options.

Due to the sweeping growth of ecommerce activity, most merchants remain unequipped to defend themselves against a fraud backlash.  A reported 20% of UK small businesses have a risk management plan butfraud is risk and risk should be managed effectively. Failure to do so is carte blanche to fraudsters. Security must be balanced with customer experience and with the predicted growth in online spending, the relevancy of this equation is more important than ever.

The ecommerce industry is continuing to see dramatic expansion as consumers get better access to more convenient digital and online shopping stores.

Merchants and banks are becoming increasingly exposed to the threat of chargebacks imposed from online transactions – they must ensure that they know what threats they’re facing online and put the right tools in place to protect themselves now and in the future.

If the proposals from the European Commission can be implemented successfully in time for the ambitious end of 2016 deadline, then ecommerce across Europe will enjoy a significant boost in transactions. However, it’s important that merchants realise that the proposals are not a golden ticket to new riches. By increasing the attractiveness of the online European market to internet businesses, the changes also increase the attractiveness for would-be fraudsters. Addressing this threat now and planning ahead with effective processes for the future will ensure that the prepared European business is the successful European business.

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