TechOnline Address Verification - Avoiding Address and Chargebacks Frauds

Online Address Verification – Avoiding Address and Chargebacks Frauds

Covid-19 gave rise to online shopping and looking at these evolving consumer trends, e-commerce companies had decided to shift towards e-business. However, while this may have introduced new inclinations in the digital market, the threat of fraud and cybercrimes has always been hanging there. One main deception that happens in e-commerce is chargeback fraud and is mostly related to wrong address entries by the customer. One main control against chargeback frauds is online address verification which deals with verifying address of the customer before completing the checkout process.

Chargebacks: Fraud That Harms the Merchants 

People mostly don’t know what chargeback frauds are and what catastrophe they bring. Before diving into chargeback frauds, we need to understand what chargebacks are in the definition. Chargeback is the right that the customer can raise in case any unintended purchases have been made from his account. Cardholder contacts the merchants, from where the unintended item has been purchased and shipped and asks for a refund. The merchant has to pay back the money taken away from the customer. Chargebacks also happen when the merchant ships a damaged item to the client or sends an item to the wrong address. In short, chargebacks are a nightmare for the merchants because they not only lose the products but also suffer from financial loss from chargebacks along with getting their reputation tarnished.

Financial losses in cybercrimes and frauds

Since cybercrimes and frauds are so in trend these days, we need to talk about the frauds that can happen in e-commerce in the form of chargebacks. As reported by FTC, in 2018, 3 million reports were filed against identity thefts, and frauds and $1.48 billion have been lost in the scam by the customers. If we look into the situation in Covid-19, then 58% of companies have reported against chargeback frauds in 2020. 

Types of Chargebacks

Merchants Need to be More Diligent 

The first type, merchant error, is mostly done from the merchant’s side due to his negligence. That can involve damaged shipped products to the customer, wrong added details, wrong transaction data, and order processing errors. Almost 20-40% of chargebacks happen due to the merchant’s mistakes. 

We need a Control against Identity Frauds

The second type involves criminal fraud and is mostly discussed in cybersecurity; identity fraud. In criminal fraud, a perpetrator gets his hand on someone else’s credit card, hacks the credit card information, or produces fake cards from the victim’s credit card information. Whatever the case is, unintended purchases happen, and chargebacks are required by the cardholders from the merchants. Criminal frauds are recorded to be in the percentage of 1-10%.

Not always the customer is innocent

The third type is friendly fraud, which is what we need to discuss in detail, as it is the most prevalent type of fraud, with a recorded percentage of 60-70%. A “friendly fraud” happens when the real cardholder purchases an item online, enters a different address, receives the order from the added address, and files a chargeback report to the cardholders, saying that the item wasn’t bought and received by him. As consumer satisfaction comes first for cardholders, they file a report for chargebacks from merchants, even though they aren’t even at fault.

The Need For an AI-Automated Address Verification System

A little about address verification

To control the incorrect address entry, either intentional or unintentional, we need to introduce a system that works on the verification of addresses. Verifying an address before taking the customer to the payment page and completing the checkout procedure will help stop the crime that happens due to the wrong addresses entered by the buyers.

How Address verify Can Reduce the Chargeback fraud?

If we add an AI-automated system to our e-commerce website in which after every completed cart, the user has to add his real address before completing the order and get his information verified with the help of an address verification solution.  The system can validate addresses by asking the user to upload a selfie picture holding the authentic documents i.e. government-issued identity documents, extracting the information with OCR technology, and confirming it with the address entered by the buyer. The order will proceed if the address verification solution comes in confirmation.

Concluding Remarks

While wrong address entry can happen due to unintentionally incorrect data entry by the user, most of the chargebacks frauds happen due to friendly frauds. Adding a valid address verification control against these frauds will confirm the identity and addresses of the customers, thus reducing fraud attempts.

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