Contactless spending may be triggering higher fraud & payment disputes, warns global risk expert
By Pavithra R
The COVID-19 pandemic has resulted in a rapid increase in contactless payments. Monica Eaton-Cardone, COO and Co-Founder of merchant dispute specialist, Chargebacks911, and its new financial institution brand Fi911, warns of the chargeback and fraud risks associated with the increase in contactless payments.
The current recommendations for social distancing to reduce human interaction has reduced the usage of cash and the touching of contact points such as PIN pads and cash machines. Customers across the globe have also got onboard with the payment method following contagion concerns about using cash and cards. As a result, Mastercard reported a 40% increase in contactless payment activity in Q1 of 2020.
This abound increase in contactless payments may be contributing to the sharp rise in chargebacks that have been recorded since the pandemic began. According to Cardone, industries are now experiencing ten times the amount of payment disputes that were taking place prior to the pandemic.
“Contactless payments present a number of fraud threats. For one, if a valid cardholder’s information is stolen, it can be added to a mobile device and used to make unauthorised purchases – leaving merchants covering customers’ losses. In addition to this third-party fraud, contactless payments present a greater opportunity for genuine customers to commit first-party (friendly) fraud and lie about whether or not a transaction was actually made by them. These scenarios pose even more of a threat while the retail landscape is going through this turbulent period and genuine claims are on the rise, so merchants are in less of a position to dispute false claims,” explained Monica.
Although chargebacks and frauds mainly affect merchants, the issue does not end there. Behind a payment dispute, is an intricate network of merchants, acquirers, issuers, and card schemes that deal with disputes and adopt their associated costs. When merchants lose money to disputes, they will inevitably raise prices to cope with these losses, thus it ends up back with customers. For this reason, Monica warns everyone involved in the payment process to remain vigilant when it comes to chargebacks that stem from contactless payments.
“If merchants want to reap the benefits of contactless payments, they need to be aware of the threats involved and have strategies in place to respond effectively. At the same time, financial institutions should watch for activity that is unusual and out of line with typical consumer behaviour – for instance, a consumer suddenly making a high-value purchase at a store that’s thousands of miles away from home. They should also be on the lookout for repeated use of the chargeback process, which might indicate friendly fraud, as 40% of consumers who commit this fraud successfully will repeat the practice within 60 days.
I also urge consumers to be aware of their account activity and to keep a close eye out for anything that may indicate that a contactless payment account has been compromised,” added Monica.
Founded in 2012, Chargebacks911 is a global company fully dedicated to mitigating chargeback risk and eliminating chargeback fraud. With locations throughout North America, Europe, and Asia, the FinTech offers region-specific expertise to its global client base. To help combat the growing chargeback problem and fraud associated with contactless payments, Chargebacks911 is working with merchants, particularly those in the most susceptible industries and financial institutions to tackle the issue head-on.
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