Is the Chargeback Data You’re Feeding Your Fraud Tech Contaminated?

Sydney VaccaroFraud PreventionLeave a Comment

Is the Chargeback Data You’re Feeding Your Fraud Tech Contaminated_

Preventing true fraud is a vital part of doing business. True fraud is when a fraudster gets a hold of credit card credentials and successfully uses them at a merchant's site or store. True fraud for merchants is a pain, not only because it results in a dispute, harms customer relationships, and possibly causes loss of goods or services. It is a pain to merchants because it leaves merchants with an unwinnable dispute, which means merchants can not regain the transaction amount lost. For undeniable reasons, you want to prevent true fraud from ever happening. This is where front-end fraud technology comes in.

Fraud tech, such as front-end fraud filters, helps merchants prevent fraudulent transactions from being accepted. But this technology relies heavily on data from disputes being fed into it, so merchants must be vigilant not to contaminate the dispute data.

Why is Chargeback Data so Important to Fraud Prevention Technology?

The quality and speed of data merchants provide their front-end fraud scoring engine is critical to accepting valid customers and preventing fraud. So, how can merchants make sure the chargeback data going into their fraud technology is clean? The key is only communicating true fraud disputes.

Let's break down what that means.

The Three Types of Fraud

There are three types of fraud when it comes to payment disputes:

  • True fraud is when a fraudster gets a hold of credit card credentials and successfully uses them.
  • Friendly fraud is when a cardholder mistakenly disputes a charge that they actually authorized. This could be because of simple forgetfulness, a family making unknown purchases, or an unclear merchant descriptor.
  • Chargeback fraud is when a cardholder maliciously disputes a valid transaction in an attempt to regain the money and keep the goods or services.

Why is it Important to Identify the Types of Fraud?

Without analyzing dispute data and factoring in the type of fraud and reason why the dispute was filed, merchants will be feeding contaminated data into their fraud filters. Friendly and chargeback fraudsters are valid customers, which means if you use data from friendly and chargeback fraud disputes to train or make your fraud filters rules, you are harming your acceptance rates and increasing false positives.

Only data from true fraud disputes should be passed to your fraud filters to create an accurate profile of what fraudsters that come to your site look like.

A Holistic Approach to Fraud and Dispute Management

The best way to achieve high acceptance rates while still maintaining a low dispute rate is by using a holistic approach to fraud and dispute management.

If merchants set up their fraud filters correctly, you should be able to filter out most of the fraudulent transactions, which means that the disputes that do happen are friendly fraud or chargeback fraud disputes. These types of disputes are invalid, and merchants can regain the transaction amount by submitting compelling evidence in a dispute response document. By utilizing data from both sides of dispute management, merchants can create a holistic dispute management process that puts you in the best place to retain revenue.

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