Chargeback Fraud: Women Inadvertently Victimizing Other Women

Women in America have come a long way. Women in American business, however, are still facing an uphill battle.

As much as we want to enforce real change for women in the working world, it’s obvious how difficult it is. But that doesn’t mean we should stop trying. By implementing small, important changes in our everyday behaviors, it is possible to truly make an impact on American business.

The Power of Consumers

Let’s start with shopping, for instance. Everyone shops—sometimes because they want to, sometimes because they have to—but no matter who they are, shopping is inevitable. As shoppers, we have more control than you might think.

One in every four American jobs is supported by the retail industry. According to the National Retail Federation, there are 3,793,621 retail establishments, 42 million retail supported jobs, and a $2.6 trillion total GDP impact in America. Within the retail industry, electronic commerce retail sales are growing at a rapid rate, totaling 305.65 billion dollars last year in America.

The retail industry envelopes all demographics, but it is one of few industries that have provided massive opportunities for women in the workforce. There are ways that we as consumers have the ability to support small businesses, not only in our own communities, but also within the community of the World Wide Web. The more businesses supported, the more entrepreneurs supported. And when it comes to retail, many of those entrepreneurs are women.

The easiest way to positively impact small businesses is simply by choosing to shop there. Picking companies that have morals and ethics that align with your own can help boost their ability to reach even more shoppers. However, spending money at a specific business is not the only interaction consumers can have with merchants.

How Chargebacks Come Into Play

There are ways that consumers can negatively impact small businesses, as well. One negative trend that is on the rise in the retail industry is the increase of chargeback fraud, also known as friendly fraud. In order to dive into chargeback fraud, we should probably let chargebacks get our feet wet first.

Chargebacks are forced refunds of credit card transactions that are debited directly from the merchant’s account and credited to the cardholder’s account by the issuing bank. Whew, that is a mouth full. Let’s break it down.

When a cardholder uses a credit or debit card to make a purchase from a merchant, the merchant’s bank (acquirer) receives the payment from the cardholder’s bank (issuer). If the purchase was made fraudulently, or the merchant did not deliver the promises of the sale, the cardholder is protected under chargebacks.

The history of chargebacks is outlined in this blog article. You’ll want to check; it has a far more detailed explanation of the history of chargebacks and how they were intended as a form of consumer protection.

For example, say you purchased a handbag online. You read the description, thought it was a great deal, and were assured that it was 100% authentic. However, when it was delivered, it turned out to be a knock off of the design that you were promised. When you went to contact the customer service department for the website, you couldn’t get through no matter how many emails you wrote or phone calls you made. You’ve been scammed. So what do you do next?

This is where chargebacks come into play. When left unhappy with a purchase and unable to resolve the issue with the merchant, customers contact the bank that issued them their credit card and request a refund. Once the situation is explained and the bank verifies the complaint, the chargeback process begins.

After a cardholder files a chargeback dispute, the issuer removes the funds from the merchant’s account. This money is temporarily deposited into the cardholder’s bank account. At this point, the merchant is fined a chargeback fee and they have the opportunity to either accept the chargeback for fight back. If they fight back against the chargeback claim, they are then required to prove their case through documentation that the sale was legitimate. If the banks and card networks (Visa, MasterCard) decide that the consumer was wrong in filing the chargeback, their account is debited again and the money is returned to the merchant. However, the fees involved are never refunded. If the banks rule in honor of the cardholder, the money stays in their account and the merchant is out of luck.

The same process takes place when a cardholder is a victim of credit card fraud. If someone unauthorized makes a purchase using their card, they are able to file a chargeback to retrieve their funds. In this situation, the fraudster gets away with the product, the cardholder’s money is protected, and the merchant loses out on both, plus added fees.

The Damaging Impact of Chargeback Fraud

Now that we have covered legitimate chargebacks, let’s clarify chargeback fraud.

Chargeback fraud occurs when consumers file chargebacks on valid purchases.

This can happen for several reasons:

  • The customer’s family member made the purchase.
  • The customer experienced buyer’s remorse.
  • The customer did not recognize the descriptor on the purchase.
  • The customer forgot they purchased the item.
  • The customer felt filing a chargeback was easier than asking for a refund.
  • The customer intended to steal from the merchant.

Chargeback fraud is riddled with issues and complexities. The people who buy things online with the intention of stealing them from businesses are going to be much harder to reign in than the ones who don’t quite understand. Filing chargebacks when they are not applicable greatly affects merchants. They not only lose a product that they thought was sold, but they also lose money through transaction and chargeback fees.

Merchants are encouraged to protect themselves from all types of chargebacks by committing to business best practices, ensuring excellent customer service, and enabling fraud detection programs. However, it is up to the consumer to eliminate friendly fraud.

Every time a cardholder commits friendly fraud, not only is it illegal, but it is immoral. Entrepreneurs with too many chargebacks are at risk of losing their credit card processing accounts. Without small business owners, we as consumers would be at a great detriment. By doing all we can to support small businesses who simply can’t afford to be pelted with chargebacks, we are supporting each other, as well as our favorite retailers.