Chargebacks911: Rise of Friendly Fraud & AI Fintech Impact
At Money20/20 Europe this June, Guy Harris, Chairman of Chargebacks911, shed light on the rise of friendly fraud in fintech and the role of AI in both combating and facilitating fraudulent activities.
Guy reveals that Chargebacks911 conducts annual surveys of their customers, primarily smaller and mid-sized merchants, to gain insights into industry trends related to chargebacks, fraud and first-party misuse.
The rise of friendly fraud
A key finding of the surveys uncovered a rising growth of friendly fraud. Guy explains: “Where we're seeing the biggest growth in the industry is really friendly fraud. It's growing at somewhere around the 40% rate every single year.”
He defines friendly fraud as instances where family members deny making purchases that they actually made, creating a complex challenge for merchants and financial institutions.
The correlation between the growth of e-commerce and friendly fraud is particularly noteworthy. As online shopping continues to expand at a phenomenal pace, friendly fraud is escalating in tandem.
This trend underscores the need for more sophisticated fraud prevention and detection mechanisms.
Chargebacks911's approach to addressing this issue focuses on providing timely information to both merchants and financial institutions. Guy emphasises: “The earlier we can get the information in front of our customers, albeit merchants and or financial institutions, the better chance we have of reducing that growth.”
By presenting proof of legitimate transactions quickly, the likelihood of fraudulent chargeback claims can be significantly reduced.
Chargebacks911: A UK expansion
The company is also expanding its presence in the UK and European markets, which Guy describes as ‘critical’ for its growth strategy. To support this expansion, Chargebacks911 has brought on Roger Alexandra as a board advisor.
Guy highlights Roger's extensive network and industry knowledge: “What he brings to the organisation is a huge network of people in the industry that he spent years being involved in and has great knowledge of payments and the sector we are in.”
Expanding services with AI
Chargebacks911’s growth has also been propelled by the use of the latest technology, and the company is leveraging AI to process and present complex data in rapid time.
Guy says: “AI automates many of those deep informational grabs that you are trying to do and brings it forward.”
This capability allows the company to deliver more efficient and effective solutions to their customers.
However, Guy also acknowledges the double-edged nature of AI in the fintech industry. While it enhances the capabilities of companies like Chargebacks911, it also empowers fraudsters.
“The negative side of it is the benefit it gives to the fraudsters because it accelerates their ability to scale their scams,” he cautions. This dynamic creates a constant race between fraud prevention efforts and increasingly sophisticated fraudulent activities.
With AI capabilities now in the hands of fraudsters, the impact of chargebacks on the industry is substantial. Guy reveals that in 2023, Americans disputed US$65.214bn worth of credit card charges, with an average of 5.7 chargebacks per cardholder, each valued at US$76.
Of course, not every chargeback is related to fraud, but the figures have risen as fraud becomes more prevalent.
Harris concludes by emphasising the importance of staying proactive in the face of rapidly changing fraud tactics: “We're having to fight it all the time, but it's coming at a faster pace. So we get to work quicker, but they're equally doing the same.”
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