• Gaurav Mittal, Executive Vice President at Ethoca, a Mastercard company


• 18.01.2024 10:00 am
#finance #digitalisation #security

With every holiday season, it becomes increasingly noticeable how spending trends are changing to become more digital. Such is the compulsion to buy online that in-store foot traffic, even under the twinkling festive lights, is no longer such a barometer of success.  

Across the period, known as the ‘golden quarter’ – running from Thanksgiving into the early new year) - spending rates in the US increased faster online (+6.3% year over year) than in-store (a more modest +2.2%). As a whole, retail sales grew 3.3% overall during the same period.

At the center of this e-commerce boom is innovation. Technology is enabling the consumer to pay and shop in a manner that suits them. One-click payments are smoothing the experience, but also raising the stakes for how brands build and retain trust with their customers.

Convenience is critical to trust

This convenience that consumers are increasingly used to is placed at risk by threats, such as fraud which can disrupt a transaction jeopardising the relationship between the purchaser and the business they are buying from.

Suspicious activity can cause a consumer to dispute the validity of a transaction with their card issuer, triggering what is known as a chargeback. This may be because he or she doesn’t recognize the transaction, is not content with the service received, or is potentially the victim of genuine fraud. 

For the merchant, the process of contesting a chargeback can be lengthy. Experience shows that it helps to have merchants and their customers work together to prevent disputes in the first place.

Technology such as real-time alerts from issuers, whenever a customer disputes a charge, allows merchants to potentially reverse the dispute, normally by refunding a purchase to prevent the need for a chargeback.

Easing disputes while protecting from fraud

At Mastercard, we help merchants protect themselves and their customers. Our Ethoca Alerts tool has smoothed the transaction experience for customers; it has been able to stop or deflect $1.6bn in fraud in just 12 months by alerting businesses to suspicious transactions.

Yet preventing this type of loss also requires making information clearer for consumers, reducing confusion, and providing a reminder of legitimate transactions, which in turn benefits retailers.

For example, adding a company logo or providing digital receipts for each outgoing payment removes confusion, and eliminates unnecessary refunds or disputes, as well as loss of revenue. Most importantly, it helps to reinforce trust.

Our data highlights the importance of providing clear and user-friendly information: a large percentage of consumers have asked their bank to increase clarity by providing more detailed transaction information.

And brands want these insights, too. One luxury fashion retailer avoided 12,000 disputes in just 12 months by using automated alerts to detect irregular or suspicious payments, preventing $7.5 million in fraud. This shows the phenomenal power of our rich data insights to reduce disputes, and fraud and increase revenue.

Preventing misuse of the dispute system

In a time of immense opportunity for brands, and with more transactions taking place online and more clarity added to these purchases, we know there’s still more to do.

There are instances when a genuine purchase can be misidentified as fraud. In these examples, brands are pressured into refunds – relinquishing both the goods and revenue from their bottom line. 

A list of unfamiliar names or references next to outgoing payments on bank statements can lead to the customer not recognizing the purchase they’ve legitimately made, then disputing the charge and requesting their money back from their bank. Known as first-party fraud (and sometimes referred to as ‘friendly fraud’) this issue is very costly and time-consuming for all involved.

Datos recently revealed that 75% of fraud experienced by digital businesses was first-party. That is why we recently launched our First Party Trust solution, powered by Ethoca technology, designed to offer merchants a way to fight misuse of the chargeback process. Legitimate disputes will remain protected but First Party Trust will allow merchants to show previous transaction history as compelling evidence that a dispute is erroneous, without affecting a consumer’s rights or Mastercard’s Zero Liability Protection.

The solution lies in combining the technologies that help reduce digital commerce fraud, prevent disputes, and improve experiences. It also requires financial institutions to continue to offer consumers the best quality transaction information to ensure accidental chargebacks are avoided. It will roll out in the US later this year, with other regions of the world to follow.

Increased trust = deeper engagement

As we emerge from the holiday shopping season brands and consumers must reap the benefits of continued innovation. We want our technology to continue to help brands embrace what their consumers are looking for: the right tools for the right outcomes for all.

Technological innovation, which we continue to invest in, alongside greater transparency helps prove genuine purchases and prevent flawed disputes. This means we’re empowering the entire ecosystem, protecting merchants from friendly fraud, while consumers can trust that they remain protected. 

This creates an environment that is positive for retailers, banks, and consumers – preserving the qualities of the golden quarter and sustaining the benefits of continued e-commerce growth for all.