During the Covid lockdown, a lot of retail spending moved online. This was good for both merchants and consumers, but it ultimately led to a surge in chargebacks and friendly fraud.
As things slowly return to normal, buyers are making their way back into physical stores. Unfortunately, chargebacks are coming with them.
Merchants have the right to contest invalid chargebacks, but proving a claim is bogus requires evidence. Brick-and-mortar merchants may have an advantage when it comes to collecting compelling transaction proof: printed receipts.
How a Consumer Protection Became Friendly Fraud
First, let’s examine how this problem developed in the first place.
A chargeback occurs when a customer requests their bank to reverse a transaction. An important safeguard for cardholders, chargebacks were only intended for cases involving criminal fraud or merchant abuse, such as deliberate overcharging.
Chargebacks give cardholders a last resort in situations where the merchant cannot—or will not—provide a refund. The system works well enough under those conditions, but these days, the process is more commonly used to commit friendly fraud.
Friendly fraud occurs when customers leverage the chargeback system to obtain an undeserved refund. This may be unintentional; when a cardholder sees an unrecognized charge on their statement, the automatic reaction is often to call the bank, not the merchant.
On the other hand, the cardholder could be deliberately trying to obtain free merchandise. This is a practice called “cyber shoplifting.” The scam works like this: a cardholder makes a purchase at a brick-and-mortar store, then calls the bank. They’ll say they cannot resolve the issue with the merchant and ask to have the charge reversed. The buyer then keeps the merchandise, but gets their money back.
Ironically, what began as a consumer protection mechanism has become a tool consumers use to steal from merchants.
“Friendly Fraud Doesn’t Happen in Physical Stores!”
Historically, friendly fraud has been more of an issue for eCommerce; most of the claims still happen in the card-not-present space. That doesn’t mean, however, that brick-and-mortar merchants can ignore the threat.
The reality is that friendly fraud has become a growing menace to merchants as a whole, according to findings from the recently published 2022 Chargeback Field Report.
The study, a joint endeavor between Chargebacks911 and Card Not Present, is based on survey results drawn from over 300 retail merchants across all verticals. Of the respondents, nearly two-thirds said that chargeback abuse—friendly fraud—had increased over the last three years.
As mentioned earlier, merchants have the right to contest unwarranted chargebacks. To have an illegitimate chargeback overturned, however, the retailer must demonstrate that the customer’s claim is false. For in-store sales, this is where printed receipts come into play.
How Receipts Work in the Merchant’s Favor
To understand the role receipts can play in fighting friendly fraud, it’s important to know how the process is supposed to work.
When a cardholder calls their bank to dispute a charge, the bank will usually tell the cardholder to try resolving the issue directly with the merchant. If the customer says they have already tried, the dispute will likely advance to a chargeback. Transaction funds are removed from the merchant’s account and returned to the cardholder. The merchant may not be informed about this until days later.
This may seem unfair, but again, merchants can contest the claim through the process of representment, which involves providing the bank with compelling evidence showing the transaction was valid.
Sometimes, a copy of the transaction details will be all that’s needed. Some point-of-sale solutions at physical stores will record and store copies of receipts, and can send them in response to the bank’s request.
That sounds convenient, but it may not be the best choice. While digital files work in the majority of cases, electronic files are more susceptible to manipulation. That means the bank may require more evidence.
Online retailers don’t really have another option, but for in-person sales, a scanned copy of a printed paper receipt can be more efficient and cost-effective. It’s hard to argue against a printed receipt. The specifics are literally all there in black and white.
If the bank sees that the customer’s claim is unwarranted, it may overturn the chargeback. Not representing the chargeback, however, means the fraudster may end up with both the product and a refund.
Physical Receipts Can Also Boost Prevention Efforts
Unfortunately, the merchant will get hit with a non-refundable chargeback fee whether the chargeback is reversed or not. That means preventing chargebacks is usually more efficient than challenging them.
There are numerous steps merchants can take to prevent chargebacks stemming from errors or criminal activity. However, the friendly fraud we’ve been talking about is post-transactional; it’s hard to prevent something you won’t even see until days or weeks after the fact. Fraudsters know this and have learned how to play the system.
It’s possible that the merchant will be able to produce an electronic receipt that contains enough information to invalidate the cardholder’s claim. The fraudster is betting against it, though.
A printed receipt is a different story. For a cyber shoplifter, a receipt printed with names, dates, prices, and truncated card data is like seeing a record of the crime before it’s even committed. One look makes it obvious that the merchant has too much evidence for the scam to work. The receipt signals that it’s time to move on to an easier target.
The Bottom Line
Electronic transaction receipts are useful, but technology can be exploited, and systems can be hacked. Printed receipts can benefit merchants in many ways, including chargeback management and prevention.
Having a hard record of transactions can simplify representment and increase the odds of success. At the same time, a printed receipt may encourage would-be friendly fraudsters to take their scams elsewhere. For brick-and-mortar merchants, it’s a win-win.