Anxieties and opportunities for digital commerce in 2021

The pandemic continues to weigh heavily on businesses? minds, both in the finance space and at large. According to the recently-released 2021 Chargeback Field Report published by tech firms Chargebacks911 and Fi911, merchant respondents in the US and UK still consider responding to the Covid-19 pandemic to be their top focus for 2021.

The average respondent also noted a 21 per cent increase in criminal fraud activity. When asked about chargeback issuances specifically resulting from Covid-19 the figure rose to 25 per cent.

This reflects a pre-existing upward trend in chargebacks and fraud that had been aggravated, but not ultimately changed by Covid-19. All things considered, it's no surprise that more than half of respondents said they had a pessimistic outlook for the rest of 2021.

However, there are still opportunities for financial institutions to help improve conditions -  if they leverage them effectively.

Reduce costs and improve efficiencies

Issuers lose more than £1 billion annually due to the processing costs, liability losses and write-offs for low-value transactions associated with chargebacks. Acquirers also lose a substantial amount to processing costs and scheme fees, not to mention the long-term impact of merchant losses on acquirers? interests.

Chargeback abuse?commonly known as ?friendly fraud?? is expected to represent 61 per cent of all chargeback issuances by 2023. This could come in the form of accidental oversights or mistakes on the part of cardholders, or it may be deliberate abuse to defraud merchants. In either case, it's clear that managing the risk posed by friendly fraud presents a substantial opportunity to lower costs for financial institutions.

This won't be an easy matter. Combatting chargeback abuse calls for multifaceted cooperation on the parts of issuers, acquirers, and the card schemes.

What institutions can do

For issuers, cardholder education must be a vital step in this process. As alluded to above, cardholders who abuse the chargeback process are a minority. Most cases of friendly fraud are the product of simple misunderstandings.

Issuers can address this problem by reframing the way consumers approach the chargeback process. Consumers need to understand what the dispute process does, why it exists, and the full weight of their decision to dispute a charge.

Acquirers for their part can help by providing more resources to merchants to help them identify ways to mitigate risk. For instance, they should deploy a multilayer strategy to prevent fraud, incorporating tools such as 3-D Secure 2.0 technology, geolocation, and velocity limits. These tools should work in tandem with ecommerce checkout best practices to optimise the customer experience.

Other moves that can help merchants manage risk include the adoption of chargeback alerts, which notify merchants about pending disputes and allow them to refund the buyer. There are also chargeback inquiry programs offered directly though Visa and Mastercard that achieve similar functions.

The age of Covid-19 has been difficult for everyone. However, if institutions look for opportunities to increase efficiency, prevent loss and improve outcomes, this could be an opportunity to address some long-standing issues in the payments space.

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