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GUEST COMMENT Why Facebook turned a blind eye to friendly fraud

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Facebook: troubled by chargebacks
Facebook: troubled by chargebacks
Monica Eaton Cardone, CIO and co-founder of The Chargeback Company
Monica Eaton Cardone, CIO and co-founder of The Chargeback Company

Facebook is constantly making headlines for its increasing revenues or its misuse of data – even if those stories don’t add up. Now its dividing opinions once again.

 

Internal emails released by Reveal unveiled questionable decisions made by the business that resulted in squadrons of unhappy parents. In the emails, the social media giant admitted to waving potential cases of friendly fraud from its games platform so that it didn’t negatively impact its revenue.

 

In order to make game users’ experience as entertaining (and seamless) as possible, it encouraged game developers to introduce frictionless one-click payments. In turn, this made it easier for players to spend more money while playing the game.

 

The nature of the payment pages, however, made it confusing apparently, for children and their parents to work out whether or not they were paying for in-game purchases.

 

In one case, a mother gave her son $20 for spending on a Facebook game. Seemingly without her consent, the game stored her details and continued to charge as he played. This resulted in accidental costs of over $1,000.

 

Is Facebook at fault?

The reason Facebook may have allowed this to occur is quite simple: it feared losing consumers by having friction in the payment process. For many e-commerce merchants, the increased risk of friendly fraud and chargebacks (as a result of a one-click purchases for instance) is far less than the risk of losing valuable customers.

 

While this story may shock some readers, it is not an uncommon practice for merchants to accept a potential increase in payment disputes and chargebacks in hopes of surges to its profit margins.

 

But we have to ask, who’s really to blame here?

 

Like all merchants, Facebook cannot simply reject the transaction because it was made from a child’s account. That original $20 given to the young boy to play on Facebook was, after all, approved initially. If the social giant rejected this transaction – and others like it – it would have been bombarded with complaints. Businesses can receive morecomplaints from rejecting valid transactions than by accepting accidental ones.

 

So it’s the cardholder’s fault?

As much as those out-of-pocket parents may hate to face it, the situation that Facebook has found itself in is actually a result of consumer demand… yes, you read that right.

 

Consumers don’t want to approve their repeat subscriptions each day, or input their 16-digit card number when they purchase online, or even re-type their password each time they log in.

 

The demand for invisible account admin and checkouts is more prevailing now than ever. And we can only expect accidental transactions to rise dramatically as a result.

 

While the demand has come from consumers, it’s not their fault that payment disputes are on the rise. Cardholders do not understand that they should be accountable for any and all transactions coming from their account.

 

Merchants cannot continue to take the blame for customers failing to read the small print, forgetting to ‘opt out’ of repeat subscriptions, or not monitoring their children’s online activities.

A friendly fraud concord

Of course, though – whoever’s fault it is – friendly fraud is certainly not condoned by regulatory bodies.

 

The maximum chargeback rate stipulated by the major card schemes is 1%. Facebook’s chargeback levels were an incredible 9%, yet it still supports Visa and Mastercard, suggesting penalties may have been waived.

 

It’s hard to deny that there is a double standard when it comes to the application of chargeback rules – some companies are so big that they are allowed to get away with a higher chargeback rate. If another, smaller merchant’s chargeback rates were over 2%, it would be blacklisted, stopped from processing credit cards and shut down.

 

This contradictory standard conveys the dire need for unified chargeback rules within the industry. At the moment, merchants, banks and cardholders are choosing to follow their own rules – this is only going to result in further chaos.

 

Inaction has consequences

Highlighting the development of this issue, last year the UK alone saw online transactions grow by 7.5%, while related chargebacks grew 23%.

 

The substantial increase isn’t just caused by accidental purchases though. We now have a new standard for how consumers react and operate with merchants as a whole – all because businesses and regulatory bodies have yet to rectify transaction liability.

 

For example, Facebook’s consumers will be encouraged to commit friendly fraud not just on its eCommerce platforms, but on other merchants’ sites too. Approximately 60% of friendly fraudsters make a new fraudulent chargeback claim within 90 days if their first goes uncontested, meaning an innocent refund attempt can turn into abuse of the fragile system.

Protecting consumers

For the most part, consumers aren’t interested in taking advantage of the chargeback system, they simply want to make card purchases and understand exactly what they’ll be charged for (in the easiest way possible).

 

More needs to be done to educate consumers to help them keep themselves protected online – and stop any misuse of the chargeback system that could have been prevented by proper parental or customer controls.

 

At the same time, more action is needed by those in charge of the card payment regime. Card schemes, regulatory bodies and the FTC are layers of supposed neutral authorisation intended to reduce chargebacks and protect consumers. It is crucial that they do their job by tightening rules and policing them adequately.

Don’t wait for the authorities to act

In the meantime, there is plenty that businesses like Facebook can do to tighten up their payment processes to protect consumers from the kind of unexpected spending that can lead to chargebacks. Merchants need to have a system in place that doesn’t threaten to decrease revenue, but helps to recognise increased likelihood of friendly fraud.

 

By working with an organisation that specialises in supporting businesses to minimise chargeback risk, like The Chargeback Company (Chargebacks911 in the US), Facebook and other merchants can ensure they strike an ideal balance between seamless, revenue-boosting payments and optimum security. In doing so, they can continue to provide an enjoyable, safe environment for their customers.

 

 

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