Merchants report rise in friendly fraud from mobile payments
Defined as an instance where the customer makes a purchase using a credit card and then petitions their bank for a chargeback instead of a merchant-issued refund. In these situations, merchants are held accountable despite any measures taken to verify the transaction.
With regular credit cards, Ravelin states that merchants generally challenge 37% of chargebacks and achieve a successful outcome 56% of the time. However, the rise of digital wallets like and has significantly muddied the waters.
In fact, the ‘Fraud & Payments Survey 2020’, which used a representative sample of 1,000 fraud and payments professionals, found that 5% of chargeback instances originating from the aforementioned digital wallets resulted in a positive outcome for merchants.
Fraud: On the rise
Although the biometrics currently being employed by Google, Apple and other payment platforms hold significant security value for consumers, they also appear to be skewing bank decision making.
“Thanks to COVID-19 and contactless delivery for products, friendly fraud has been on the rise for the past few months, and Google and Apple Pay’s biometric security features don’t stop friendly fraud. It’s costing merchants a huge wad of cash at a time when profit margins have become wafer thin,” explains Mairtin O’Riada, Co-Founder and CIO at Ravelin.
“The key to fighting this issue is to keep a closer eye on your own payment data. If you can track payment method types, the issuer country, loyalty scheme points and BIN ranges, you can begin to start to challenge chargebacks with more confidence and success.”
Improving digital wallets
The impending ubiquity of digital wallets has, for , become almost an inevitability. From P2P payments and bills to groceries, e-commerce, cryptocurrencies and more, there is seemingly no limit to how far this technology could integrate with our daily lives.
Therefore, it behoves companies and banks to work towards resolutions that overcome a frictional consumer-merchant dynamic.
“I predict that the use of digital wallets will continue to grow steadily in the next decade, and one reason for that relates to bill pay,” commented Michael Kaplan, Chief Revenue Officer and General Manager at.
“Some people already pay for groceries or shop online with their Google or Apple Pay accounts. It’s a bit of a novelty and relatively convenient, but it’s when consumers start paying bills through the digital wallet that they will fully appreciate it for the enormous ease and time savings it gives them.”
What are the costs of preventing financial crime?
The survey of 300 financial crime decision-makers working in the financial services sector in the UK, found that on average, organisations spent £53 annually on financial crime defence for each customer relationship they have.
Andrew Jacobs, head of regulatory consulting at DWF, said: "Responses to the survey indicated that firms with a revenue of around £10m per year are likely to spend in the region of 1.72% of total revenue on financial crime prevention and deterrence. Larger firms are typically spending less than 1% of total revenue to fight financial crime, particularly those with l revenue of £50m or greater. As a cross-section of the Financial Services sector, this tells us that proportionately, smaller firms are spending a greater share of their turnover on financial crime prevention.
"Conversely, firms with greater revenue (£10M plus) are clearly spending most of their financial crime spend on human resources, with over 32% of annual spend being on Financial Crime roles, compared to those firms with a turnover up to £500,000 for whom Financial Crime roles never exceeds 27% of total annual financial crime prevention spend. This figure and our wider analysis shows us that Human Resources continue to be one of the most effective ways of detecting human behaviour linked to Financial Crime activity.”
UK spending on financial crime roles
At the end of their reporting periods, respondents said there was an average of nine full-time employed UK staff within their firm performing financial crime roles, spending an average of 46 hours of employee time per week monitoring transaction alerts and reviewing screening alerts. The analysis also showed that every additional 10 hours spent weekly on monitoring transactions and reviewing alerts, result in an additional 1.5 Suspicious Activity Reports (SARs) raised internally.
Technology is key to increasing financial crime detection and prevention, but it is also a significant factor in driving up costs and staff workload. Respondents highlighted that over the last 12 months, £76,000 was spent on financial crime prevention technology, per firm. They also stated that they expect their firms will spend around £800,000 on crime prevention technology in the next five years. Technology usage is widespread – with 82% of firms using an automated system to screen clients and 84% employing transaction-monitoring software for Anti-Money laundering (AML) and sanctions detection.
"The statistics tell us that because technology generates more alerts and highlights more potential risks, it also requires more time on follow-up investigatory work, but exactly how much is created is dependent on whether firms have correctly calibrated their systems. There is the real danger that poorly aligned alert systems simply create a cottage industry within a firm," said Jacobs.