Rising to the Challenge: Safeguarding Online Transactions with Fraud Scrubbing

The popularity of internet shopping has soared both in the UK and across the globe. However, with the surge in online transactions comes an increase in risk. Elevated authorization processes sometimes lead to the unfortunate decline of genuine transactions, resulting in missed sales and frustration for both merchants and customers.

To mitigate these risks, staying vigilant and employing efficient tools and techniques for fraud prevention, such as fraud scrubbing, is crucial. Let's delve into what these tools are and how they can help differentiate between fraud, friendly fraud, and legitimate customers.

Understanding Fraud Scrubbing

Fraud scrubbing is a verification process designed to ensure safe and secure online payments through e-commerce platforms. This process examines the customer's IP address, cross-references it with IP blacklists, and verifies if the IP geolocation matches the billing address. If anything appears suspicious, the transaction is promptly declined.

Research shows that credit cards are the leading payment method for committing fraud, accounting for 61% of online merchants' concerns. Thus, having the right tools in place is essential to prevent such incidents.

Unpacking Friendly Fraud

Friendly fraud, also known as chargeback fraud, occurs when a customer claims a chargeback without a legitimate reason to do so. Interestingly, these customers often unknowingly commit fraud, seeking an immediate refund for various reasons that can be resolved amicably by contacting the merchant. Surprisingly, 23% of consumers admit to requesting chargebacks even though they were satisfied with their purchase.

Legitimate chargebacks, on the other hand, arise when customers haven't received the product or service they paid for due to fraudulent activity, unauthorized payments, non-delivery, or unresponsive merchants.

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Preventing Fraud and Chargebacks

As a merchant, you can take proactive steps to prevent fraud and chargebacks by implementing software that detects and acts upon suspicious activities. Failure to do so could lead to unnecessary revenue losses. Here are some valuable fraud prevention tools:

1. Fraud Scrubbing: Verify transaction data, including IP address, physical address, and email address, to ensure legitimacy.
2. Hotlists: Utilize blacklists to reject payments from specific emails, IPs, countries, devices, or addresses based on past suspicious activities.
3. Chargeback Alerts: Receive early warnings when a chargeback is filed, allowing you to address it before it becomes official and reduces your business costs.
4. Fraud Protection Suite: Stay on top of fraudulent activities with real-time transaction monitoring and management.
5. Rolling Reserves: Hold a percentage of each transaction in your merchant account for a specific period to cover potential fraud or chargeback costs.

Enhanced Security Protocols

As cart abandonment rates continue to be a concern, a frictionless checkout experience is now paramount. The European Union's Payment Services Directive (PSD2) introduces updated security protocols to combat fraudulent activity by mandating multiple-factor authentication for online transactions. Fortunately, these additional steps have become seamless and rarely hinder the customer experience.

Visa's Initiative to Tackle Friendly FraudIn April 2023, Visa plans to update its fraud reporting requirements to reduce friendly fraud chargebacks and help merchants retain more revenue. The Compelling Evidence 3.0 (CE3.0) initiative aims to create a fairer ecosystem for sellers, issuers, and cardholders by giving merchants more scope to dispute claims with evidence contradicting the cardholder's allegations.

By staying vigilant and implementing the right tools, merchants can safeguard their businesses and customers from potential fraud risks and ensure a smoother online shopping experience for all.

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