The Role of Blockchain in Fighting Chargeback and Ecommerce Fraud

Sydney VaccaroIndustry Trends1 Comment

The Role of Blockchain in Fighting Chargeback and Ecommerce Fraud

About the Author

Pauline speaks Portuguese, English, Spanish and Italian and currently she works as a translator at translation service TheWordPoint. She travelled the world to immerse herself in the new cultures and learn languages. Today she is proud to be a voting member of the American Translators Association and an active participant of the Leadership Council of its Portuguese Language Division.

Blockchain technology could give you an edge of your competitors, and make sure you don’t lose out on any more money.

You've more than likely heard of blockchain technology - especially with the popularity of Bitcoin which took the world (and media) by storm, a few years back.

With e-commerce increasingly becoming the primary way that people shop, with a reported 92% of Americans buying online.

However, e-commerce brings its own set of problems, that brick and mortar stores have never had to deal with. Security and customer support aren't as easy when shopping online. Many customers opt not to deal directly with people, which creates unique dilemmas. Two of the most significant problems that e-commerce sites face are fraud and chargebacks.

Well, blockchain can actually solve many common issues that e-commerce sites have, including both chargebacks and fraud. We will explore this here.

What Are Chargebacks?

Chargebacks are an issue that affects merchants and can actually have cataclysmic effects on a business.

More than likely, as a merchant or a customer, you have dealt with a chargeback. You might even be curious about how they work.

A chargeback is a form of protection, working for the consumers/cardholder's safety. They are not a refund, though. Many get the two mixed up, but chargebacks work differently.

Rather than a consumer contacting a business for a refund, for whatever reason, a chargeback is where the bank forcibly removes funds from a business' bank account.

The bank will decide if the request is valid, and the money will be removed from the merchant's account.

The purpose of chargebacks is to ensure that customer satisfaction is at the forefront. It also helps to prevent merchants from selling sub-par services and products. Helping businesses to stay honest, and putting their customers at the forefront.   Chargebacks have evolved into what's known as "chargeback fraud" where consumers steal the money back from merchants, using it as a weapon against a company.

Chargebacks are entirely legal in situations where a product is not how it has been described, identity theft, or the merchant is wrongly refusing a refund. Sometimes consumers will file for a chargeback for one of these reasons:

  • They regretted the purchase
  • They wanted to avoid a handling fee
  • They didn't read the delivery time
  • The return limit had expired
  • They want to make extra money

This is a big issue for e-commerce sites. In 2016, at least £30 billion was lost by e-commerce merchants caused by chargeback-fraud. It's estimated that this figure is much higher, though.

Of course, merchants can respond to these chargebacks - but wouldn't it be much better if we could prevent them altogether.

Other Types of Fraud that E-commerce Sites Deal With

We don't mean to put you off starting an e-commerce business - it does come with a few set problems, and they need to be addressed.

Chargeback fraud takes a big hit on many e-commerce retailers. There are also other types that will hurt your company. Experian stated that there was an increase of 30% in e-commerce fraud attacks in 2017, and it shows no signs of slowing down.

Identity theft - this can lead to fraudulent purchase from your site

True fraud - Using a stolen credit card to make a purchase (which then results in a chargeback)

Affiliate fraud - Manipulating traffic to a page  

Triangulation fraud - Where a fake replica site is set up, and the damage of reputation caused by the phony store, damages the real one.

It seems absolutely terrifying, we know, but Blockchain could be the answer to all these fraud problems. Here's how.

How Blockchain Payments Work

Think of blockchain like a computerized lego. It's a set of blocks that are continuously put together into a chain, every time a transaction occurs. However, this chain cannot be reversed or changed once it is formed.   It's this feature - that the information cannot be manipulated which makes it so attractive for payment technologies.

“Blockchain can improve the security, cost, and speed of every payment that you make. It's next to impossible to hack and eliminates many of the problems that merchants and customers have experienced for years.” — Jonathan Haynes, Tech Writer at TheWordPoint.

How Blockchain Can Stop Chargebacks

Chargebacks leave merchants returning billions of dollars in disputed credit card charges to customers, which leaves a pretty nasty dint on the business.

Wouldn't it just be great it chargeback fraud didn't exist? This way legitimate businesses could decide when and if they'll give a refund. That's now possible with the use of blockchain.

As blockchain transactions occur instantly and are recorded at every location in the network, they cannot be hacked or faked.

Companies have begun to adopt this high-tech option for transactions. They can accept any type of currency, whether it be crypto or fiat and their preferred methods.

This means that merchants no longer have to worry about chargebacks or clearance times, and they can settle payments instantly. Usually, this can take weeks or months.

Not only this, but fees are much lower. Sometimes hitting as low as 0.1%, this is objectively very appealing for many businesses.

How Can Blockchain Stop Other Types of Fraud

Blockchain was actually created to prevent fraud in digital currency exchanges. Now, in 2019, other industries have realized just how useful it can be for them.

Identity fraud can be avoided entirely by blockchain technology. With their unique key numbers, and secure digital IDs. This way, only the real cardholder can access the account, and it cannot be traced back.

Hackers might not enjoy this little development, but this is excellent news for shoppers and merchants. No more sleepless nights caused by identity fraud. What more could we ask for?

Of course, other types of fraud might still affect e-commerce sites, even with blockchain technology. However, the three principal losses caused by chargeback fraud, friendly fraud, and true fraud can very much be avoided.

With blockchain, you basically have a trustworthy third-party payment transaction. It gives you peace of mind and transparency when making any payment, and benefits both the e-commerce business and the customers shopping there.

Once all merchants, partners, and shoppers are using blockchain technology, fraud will undoubtedly be a distant memory. Until then, we can just strive for mass adoption.

Conclusion

As an e-commerce business, you're always looking for new ways to prevent losses and stop fraud. Blockchain might just be the saving grace that you were looking for.

Blockchain technology already offers benefits that traditional payment methods just cannot provide. The main one revolves all around security and prevention against fraud.

Your mission now is to integrate a user-friendly way for customers to use blockchain, incorporating it into your site, and giving your customers the opportunity to change the way they spend their money.

This technology could give you an edge of your competitors, and make sure you don't lose out on any more money.

You've more than likely heard of blockchain technology - especially with the popularity of Bitcoin which took the world (and media) by storm, a few years back.

With e-commerce increasingly becoming the primary way that people shop, with a reported 92% of Americans buying online.

However, e-commerce brings its own set of problems, that brick and mortar stores have never had to deal with. Security and customer support aren't as easy when shopping online. Many customers opt not to deal directly with people, which creates unique dilemmas. Two of the most significant problems that e-commerce sites face are fraud and chargebacks.

Well, blockchain can actually solve many common issues that e-commerce sites have, including both chargebacks and fraud. We will explore this here.

What Are Chargebacks?

Chargebacks are an issue that affects merchants and can actually have cataclysmic effects on a business.

More than likely, as a merchant or a customer, you have dealt with a chargeback. You might even be curious about how they work.

A chargeback is a form of protection, working for the consumers/cardholder's safety. They are not a refund, though. Many get the two mixed up, but chargebacks work differently.

Rather than a consumer contacting a business for a refund, for whatever reason, a chargeback is where the bank forcibly removes funds from a business' bank account.

The bank will decide if the request is valid, and the money will be removed from the merchant's account.

The purpose of chargebacks is to ensure that customer satisfaction is at the forefront. It also helps to prevent merchants from selling sub-par services and products. Helping businesses to stay honest, and putting their customers at the forefront.   Chargebacks have evolved into what's known as "chargeback fraud" where consumers steal the money back from merchants, using it as a weapon against a company.

Chargebacks are entirely legal in situations where a product is not how it has been described, identity theft, or the merchant is wrongly refusing a refund. Sometimes consumers will file for a chargeback for one of these reasons:

  • They regretted the purchase
  • They wanted to avoid a handling fee
  • They didn't read the delivery time
  • The return limit had expired
  • They want to make extra money

This is a big issue for e-commerce sites. In 2016, at least £30 billion was lost by e-commerce merchants caused by chargeback-fraud. It's estimated that this figure is much higher, though.

Of course, merchants can respond to these chargebacks - but wouldn't it be much better if we could prevent them altogether.

Other Types of Fraud that E-commerce Sites Deal With

We don't mean to put you off starting an e-commerce business - it does come with a few set problems, and they need to be addressed.

Chargeback fraud takes a big hit on many e-commerce retailers. There are also other types that will hurt your company. Experian stated that there was an increase of 30% in e-commerce fraud attacks in 2017, and it shows no signs of slowing down.

Identity theft - this can lead to fraudulent purchase from your site

True fraud - Using a stolen credit card to make a purchase (which then results in a chargeback)

Affiliate fraud - Manipulating traffic to a page  

Triangulation fraud - Where a fake replica site is set up, and the damage of reputation caused by the phony store, damages the real one.

It seems absolutely terrifying, we know, but Blockchain could be the answer to all these fraud problems. Here's how.

How Blockchain Payments Work

Think of blockchain like a computerized lego. It's a set of blocks that are continuously put together into a chain, every time a transaction occurs. However, this chain cannot be reversed or changed once it is formed.   It's this feature - that the information cannot be manipulated which makes it so attractive for payment technologies.

“Blockchain can improve the security, cost, and speed of every payment that you make. It's next to impossible to hack and eliminates many of the problems that merchants and customers have experienced for years.” — Jonathan Haynes, Tech Writer at TheWordPoint.

How Blockchain Can Stop Chargebacks

Chargebacks leave merchants returning billions of dollars in disputed credit card charges to customers, which leaves a pretty nasty dint on the business.

Wouldn't it just be great it chargeback fraud didn't exist? This way legitimate businesses could decide when and if they'll give a refund. That's now possible with the use of blockchain.

As blockchain transactions occur instantly and are recorded at every location in the network, they cannot be hacked or faked.

Companies have begun to adopt this high-tech option for transactions. They can accept any type of currency, whether it be crypto or fiat and their preferred methods.

This means that merchants no longer have to worry about chargebacks or clearance times, and they can settle payments instantly. Usually, this can take weeks or months.

Not only this, but fees are much lower. Sometimes hitting as low as 0.1%, this is objectively very appealing for many businesses.

How Can Blockchain Stop Other Types of Fraud

Blockchain was actually created to prevent fraud in digital currency exchanges. Now, in 2019, other industries have realized just how useful it can be for them.

Identity fraud can be avoided entirely by blockchain technology. With their unique key numbers, and secure digital IDs. This way, only the real cardholder can access the account, and it cannot be traced back.

Hackers might not enjoy this little development, but this is excellent news for shoppers and merchants. No more sleepless nights caused by identity fraud. What more could we ask for?

Of course, other types of fraud might still affect e-commerce sites, even with blockchain technology. However, the three principal losses caused by chargeback fraud, friendly fraud, and true fraud can very much be avoided.

With blockchain, you basically have a trustworthy third-party payment transaction. It gives you peace of mind and transparency when making any payment, and benefits both the e-commerce business and the customers shopping there.

Once all merchants, partners, and shoppers are using blockchain technology, fraud will undoubtedly be a distant memory. Until then, we can just strive for mass adoption.

Conclusion

As an e-commerce business, you're always looking for new ways to prevent losses and stop fraud. Blockchain might just be the saving grace that you were looking for.

Blockchain technology already offers benefits that traditional payment methods just cannot provide. The main one revolves all around security and prevention against fraud.

Your mission now is to integrate a user-friendly way for customers to use blockchain, incorporating it into your site, and giving your customers the opportunity to change the way they spend their money.

This technology could give you an edge of your competitors, and make sure you don't lose out on any more money.