To counter the rising tide of first-party misuse chargebacks, also known as “friendly fraud,” Chargeback Gurus has introduced ARI, a predictive-analytics engine the company says can identify transactions likely to be disputed by the cardholder, even though the transaction is legitimate.
ARI uses artificial intelligence to analyze data gathered from millions of chargebacks and identify transactions that have a high probability of being disputed. Merchants can use the information to prevent revenue loss by blocking flagged transactions or requiring additional authentication.
First-party misuse, which can involve a buyer using the chargeback system after simply changing his mind about a purchase, is a growing problem for e-commerce and retail merchants. Indeed, more than 70% of chargebacks stem from this issue, according to estimates from Chargeback Gurus, a provider of transaction-dispute management services. In addition, merchants that don’t take steps to mitigate the risk of first-party misuse can lose up to 10% of their total revenue, the company says.
A report earlier this year from fraud-management platform provider Cybersource revealed that first-party misuse is the leading type of fraud encountered by small and mid-size businesses and ranks among the top five types of fraud attacks experienced by mid-market and enterprise merchants, the report says.
Globally, merchants believe 16% of fraudulent disputes should be attributed to first-party misuse, according to Cybersource. Common reasons for such chargebacks include consumers not recognizing a transaction, consumers looking to get free goods or services, buyer’s remorse, confusion about transaction descriptors, attempts to return goods outside of a merchant’s return period, or card issuers incorrectly processing general cardholder disputes as fraud. In many cases, consumers often receive their money back but merchants fall victim to an invalid disputed transaction, according to Cybersource.
“Existing chargeback-prevention alerts are only triggered after the buyer has disputed the charge. In addition, these alerts can only prevent a chargeback if a refund is issued immediately,” Suresh Dakshina, president and co-founder of Chargeback Gurus says in a prepared statement. “ARI provides a more effective solution for merchants to minimize first-party misuse without losing revenue to constant refunds. In order to better serve merchants’ needs, we also built ARI with low-code/no-code integration in mind to minimize the resources needed for implementation.”