Executive Interview: Chargebacks911’s Monica Eaton-Cardone on dealing with chargebacks

First published on September 2, 2016

Airlines aren’t analyzing their chargeback data sufficiently or efficiently. There is a need to make the most of multi-layer fraud management.

Clean fraud, friendly fraud, fast fraud, criminal fraud, merchant fraud…the list seems to be an endless one.

Airlines can’t ignore the malice of fraud, and so much so that chargeback management needs a continuous scrutiny. There is a need to analyse data and monitor chargeback sources to identify trends and triggers; recover losses whenever possible.

It is important for airlines to understand whether they are analysing their chargebacks enough.

“Chargebacks indicate a mistake has taken place somewhere—whether that is a fraud filter that didn’t detect criminal activity, a policy that is unnecessarily restrictive, or a consumer acted unethically,” says Chargebacks911’s COO, Monica Eaton-Cardone.

Monica says reviewing each chargeback that makes it through your defenses is hugely beneficial. These transaction disputes come with a wealth of information that can greatly enhance your future management efforts. “However, identifying that useful information is challenging. Sifting through all the available data to determine which is pertinent and actionable is time consuming. And, if merchants base their decisioning on insufficient or inaccurate data, they’ll do more harm than good.”

“Bottom line: Airlines aren’t analyzing their chargeback data sufficiently or efficiently. However, simply mandating more analysis isn’t the answer. Professional insight is needed to improve the efficacy and streamline resources,” she asserted.

And if this isn’t addressed properly, problems only compound. For instance, accounting for chargebacks is dreadful. If a chargeback has been filed, the damage to your accounting has already been done. Also, the process is a prolonged one. As Chargeback911 highlights, each chargeback comes with a fee. That means you’ll have to document not one, but two transactions in your accounting software!

Ai’s Ritesh Gupta recently interacted with Monica about related issues. Excerpts:

Ai: The commerce industry has seen dramatic changes in how payments are handled. Can you explain how the problem of chargebacks has evolved?

Monica Eaton-Cardone: The groundwork for chargebacks was first laid with the U.S’s Truth in Lending Act of 1968—long before the invention of the Internet. The federal government began to provide consumer protection against fraud liability. Chargebacks were a brick-and-mortar protection mechanism, and back then, there were only two sources of chargebacks—criminal fraud and merchant error. Cardholders were incentivized to use payment cards because they wouldn’t be liable if a criminal made purchases with a counterfeit card or the merchant accidentally processed a transaction twice. Merchants were rightfully held responsible for providing a safe and secure purchasing experience—until the Internet came along.

Seemingly overnight, the chargeback system became archaic, unable to handle modern payment processes. All of a sudden, there was a new and illegitimate way to use chargebacks. Consumers learned about the loopholes and identified ways to cheat the system.

Despite this new consumer behavior, merchants are—like they always have been—the bearer of all responsibility. What’s worse is more and more policies and technologies are sought out to protect the cardholder while less and less is being done to alleviate merchant’s friendly fraud liability.

Ai: What do you recommend when it comes to understanding what is causing chargebacks? How can you airlines become smarter and learn from their mistakes? 

Monica Eaton-Cardone: It’s only possible to learn from our mistakes if we can identify mistakes for what they are. An inability to detect issues can limit the effectiveness of an in-house team. An outside perspective, however, is often more objective and filled with constructive criticism that will produce greater results. (Points in favour of in-house - can be cost-efficient since there isn’t an incremental cost per transaction, in-house teams come to recognize fraud and chargeback patterns and can adjust pre-emptively. For example, fraud associated with Black Friday is predictable; product knowledge etc.).

Airlines need to carefully analyze the effectiveness of their in-house teams and be open to the idea that outsourcing might have greater return on investment. 

Fraud threats are constantly changing. As fraud detection technology evolves, criminals alter their tactics—what worked for them yesterday might not work today. When it comes to fraud and chargeback management, agility is one of the most valuable characteristics.

Unfortunately, most in-house teams are unable to be as dynamic as they’d like to be. In-house experts might know every nuance of their own business and even be aware of trends in their industry; however, a chargeback expert is aware of trends in all industries and how those tactics are affecting payment processing across the board.

Ai: Can you talk about the latest developments in the arena of fraud filter technology? How has it helped in dealing with issues and where does it tend to fall short?

Monica Eaton-Cardone: Fraud filter technology has made great strides in recent years. Machine learning, as opposed to static rule sets, helps decrease unauthorized transactions while also reducing the risk of false positives. 

However, as Bill Gates once said, “automation applied to an efficient operation will magnify the efficiency…automation applied to an inefficient operation will magnify the inefficiency.”

Merchants are tempted to trust fraud filters implicitly and take their results at face value. While technology can help streamline efficiencies, they can’t fully replace human analysis. Manual reviews still play an integral part in effective fraud detection and chargeback prevention.

Ai: Chargebacks can also result from merchant fraud and criminal fraud. Going forward, how do airlines need to gear up for all sorts of fraud that can result in chargebacks?

Monica Eaton-Cardone: A phrase that is quite common throughout the industry right now is “multi-layer fraud management,” an idea that no single solution or strategy is sufficient to detect all fraud (rather this approach combines multiple complimentary solutions). Airlines can’t rely on just the basic tools, nor should they use every product on the market; neither strategy will effectively minimize risk exposure. For example, any merchant who uses Address Verification Service along with card security codes or 3D Secure is technically using multiple solutions to prevent fraud. (Other options include card security codes, geo-location, device authentication, proxy piercing, biometrics etc.)

Airlines need a carefully constructed fraud mitigation plan that incorporates complimentary tools for comprehensive protection.  On the surface, this may seem like an elementary idea, implementation of the concept is quite complex. Airlines need to carefully consider a plan that will address their individual threats.

(Airlines also constantly need to understand what sort of fraud is taking place, especially with a number of new ways in which a transaction can be done. For instance, in case of clean fraud, a fraudster manages to impersonate genuine cardholders and tend to commit fraud without raising red flags!).

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