Digital Transactions | March 22, 2017

By Jim Daly

The migration of payment card fraud to the Internet in the wake of EMV chip cards coming to the point of sale is not new, but new findings from a company that specializes in card-not-present risk control and chargeback reduction provide insights on the breadth of the problem and offer ways to mitigate it.

Delray Beach, Fla.-based Pinpoint Intelligence saw a 40% increase in chargebacks or pre-chargeback alerts among its client base over 2015, according to Benjamin Grossman, the company’s chief executive and cofounder. “Most of it can be [attributed] back to, almost directly, to EMV implementation.” said Grossman, speaking Tuesday at the Southeast Acquirers Association annual conference in Charlotte, N.C. “We’re looking at a continued increase in online fraud.”

The coming of EMV chip cards in the past two years has made it very difficult for crooks to use counterfeit magnetic-stripe cards at the point of sale. As predicted, fraudsters have turned their attention to more vulnerable card-not-present channels, where chip cards offer no more protection than the old mag-stripe cards.

“CNP fraud is kind of like at the perfect storm … EMV migration has been a complete and utter disaster for card-not-present merchants,” said Grossman. He said fraud last year increased 15% faster than transactions.

To reduce fraud’s impact, online merchants, merchant acquirers, and other payments companies that work with merchants need to do a better job collecting data beforehand that may be indicative of transaction risk, take action on that data, and communicate with customers more effectively, according to Grossman.

Regarding communication, merchants should provide options that route purchase disputes to them before cardholders take them to issuers, who will then initiate chargebacks, according to Grossman. One way merchants can do that is by listing a phone number in the transaction descriptor that is flagged by the merchant’s system to be answered quickly by customer-service agents.

“Significant—almost a 10% reduction in chargebacks by having the phone number that’s on the descriptor go directly to the top of the queue for your customer service, and answering it within one minute,” said Grossman.

Pinpoint on average sends 91% of the transactions it reviews through without further checking. It rejects the 3% that score high enough on its risk scale of one to 99, while another 6% in the middle go to manual review.

Grossman says one data element to reduce chargebacks is the customer’s phone number, which can be called when an authorization request raises suspicions. “Many, many merchants don’t collect phone numbers” because they fear asking customers yet another question online will reduce conversion rates, said Grossman, a contention he disputes.

As have some other observers, Grossman said the newly upgraded 3-D Secure online risk-control technology is much improved over the old version, which e-commerce merchants disliked because it detoured buyers away from the merchant’s Web site for authentication, leading to transaction abandonment. The new 3-D Secure does most of its authentication work behind the scenes.

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