Friendly fraud is spiking, a bad trend that is an opportunity and a challenge for Chargebacks911, which needs to manage a higher volume of disputes and the complexity of new payment options and processing methods.
Bank of America alum Guy Harris and Apple Pay pioneer Eric Hoffman recently joined Chargebacks911, following co-founder Monica Eaton becoming the firm's CEO in April and the retirement of CEO Gary Cardone. Chargebacks911 is addressing a first party fraud problem that its own research and outside data suggest is getting worse, with prevention complicated by the growth of transactions outside of stores and away from point of sale terminals.
"One of the benefits of the traditional card system is there is a set way to handle disputes," Harris said, adding that fraud mitigation needs to move beyond the back office and encompass everything from shopping to settlement to keep up with changes in the payments industry. "With the shift to real-time processing and digital payments, there needs to be something in place to handle these disputes."
Harris is Chargebacks911's chairman of the board and Hoffman is the company's new president of interbank solutions. Harris recently retired as head of merchant services at Bank of America and was president of North America for Elavon earlier in his career. Hoffman was director of Apple Pay Business Development, and was one of the first members of the Apple Pay team when the app launched in 2014. Hoffman is also president of the board for the Electronic Transactions Association.
"It felt like a good time in my career to take on a new challenge," said Hoffman, who also helped lead Apple's tap-to-pay technology, which enables merchants to use iPhones as point-of-sale devices without add-on hardware. Both Hoffman and Harris will serve on Chargebacks911's board, and Hoffman will work on building a network of issuers and merchants that collaborate on vetting transactions while minimizing disruption to consumers.
Chargebacks911 was founded in 2011 and has about 200 employees.
"There has been an incredible growth in e-commerce, and with that comes a need for all of the support services that are required to manage disputes," Hoffman said. "Chargeback mitigation has never been needed more than it is now."
Harris anticipates building on his experience working with partners on mobile wallet development to create a network effect for Chargebacks911. "If you think about the parties in a transaction — the consumers, merchants, issuers and merchant acquirers — there is an opportunity to build a dispute resolution service that supports all of the emerging requirements," Harris said.
The new executives give Chargebacks911 stronger ties to the development of mobile payments and the growth of contactless payments in stores.
"Chargeback's hiring of executives from Bank of America and Apple will surely add depth to their business offering, which is well timed, considering the growth in card not present transactions and Visa's latest integration of their chargeback rules under Compelling Evidence 3.0," said Brian Riley, co-head of payments at Javelin Strategy & Research.
Chargebacks911's 2023 Field Report, which is based on a survey of 300 retailers and 4,000 consumers, found friendly fraud in 2022 grew 19% — and that more than half of merchants said friendly fraud is a significant or moderate concern for their business.
Eighty-six percent of chargebacks are friendly fraud, according to Chargebacks911. And fraud firm
The difficulty in friendly fraud mitigation in e-commerce and faster processing is the window to vet transactions has shortened, according to Harris. Also, since most consumers contact their card issuer and not the merchant with a dispute, there's an additional step in vetting transactions for friendly fraud since the merchant is more likely to know if a purchase was legitimate.
"The challenge is getting the data on that customer and the payment," Harris said. "If someone is at a store, it's easier to know if they left with an item. It's more difficult to do that with electronic shopping and emerging payment technology."
Artificial intelligence can help to mitigate chargebacks by improving the speed in accumulating data and the behavioral analysis to spot friendly fraud earlier, according to Harris.
Chargebacks911 is also facing regulatory pressure. The Federal Trade Commission and Florida are
Other companies are also updating their chargeback prevention.
"Disputes are a growing problem for the industry as a whole, both merchants and issuers, and as is often the case, the best cure is prevention, such as stopping disputes happening in the first place," said Zil Bareisis, head of Celent's retail banking and payments practice, adding that real-time payments add new challenges for fraud and dispute practices that are not usually well-defined.
