“The person said that they didn’t receive it,” she said. “I was willing to give the person’s money back, because it could have been true. It’s not likely, but it could have been true.”
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Even with a signature, however, it’s difficult to prove that a customer actually received the goods they ordered inside a delivery parcel, particularly for smaller items such as electronics and jewelry. On top of that, conventional theft can still enter the picture: urban centres are rife with tales of Amazon.com boxes being plucked off of people’s front porches by thieves.
“You can’t really say anything in these cases,” Zarify said. “It is in (the customer’s) favour.”
Fraud losses as a portion of retailers’ online revenue has risen to 1.47 per cent in 2016 from 1.32 per cent last year and 0.68 per cent in 2014, according to a report by LexisNexis Risk Solutions, a risk management firm in Atlanta.
Retailers generally do not like to talk about how much they are losing to online fraud, but it’s a new facet of a very old problem, said Michael LeBlanc, senior vice-president of Marketing and Digital Retail at the Retail Council of Canada.
“It’s like a whack-a-mole game,” he said. “If you make it hard to commit fraud in stores, then (thieves) will look for some other way to commit fraud and it pops up somewhere else. This non-stop game against fraudsters just changes its characteristics a bit.”
In recent years, retail stores have implemented stepped-up measures to guard against people using stolen credit cards through so-called chip and PIN technology, where customers verify credit card transactions using their own numbered pass code. Online, it is much more difficult for a retailer to verify whether or not consumers are who they say they are.
Fraudsters typically make online purchases using other people’s cards, and tend to buy items that are in high demand and easy to fence. Analysts have also seen an increase in instant-delivery downloadable gift card thefts, where people resell the card or quickly spend it and keep or sell the merchandise.
In many cases, if not all, LeBlanc notes, the consumer is protected in such situations because the credit card issuer typically covers the cost of improper charges and then sends the retailer what is known as a “chargeback,” which includes the full price of the good and can include a bevy of other charges.
“The retailers get chargebacks because they are supposed to be able to protect against stuff like that,” LeBlanc said. “No retailers want to talk too much about how they try to protect against (online fraud), because then someone is going to figure out a way to get around it.”
When fraud occurs at a store, the merchant typically does not carry liability — the bank does — because there are systems to authorize that the funds are available, says Aaron Press, director of market planning, e-commerce and payments, at Lexis Nexis Risk Solutions.
But that is not the case with online fraud in so-called “card not present” transactions. “The liability is shifted to the merchant, so they have a lot more burden to validate as much as they can about the transaction and attempt to avoid a chargeback,” he said.
Given the spike in online fraud, retailers are incurring higher and higher levels of chargebacks.
Many stores use automated systems to flag suspicious transactions, but Press said retailers send almost half of those flagged transactions for a review by an analyst who verifies addresses and phone numbers and cross references them with email addresses. Organizations can also do web searches and/or use paid database sources to verify individuals.
“It can be a fairly labour-intensive process,” he said.
The liability is shifted to the merchant, so they have a lot more burden to validate as much as they can about the transaction and attempt to avoid a chargeback.
Retailers also accrue costs that stretch far beyond the chargeback when fraud occurs.
“It’s not just the cost of the $100 item you shipped (as a retailer),” Press said. “You lost the item, you paid the logistics costs, you incurred chargeback fees, you incurred payment processing fees twice and then you might have paid somebody to do a manual review. You then paid to replace that item and put it back into inventory.”
The buy online and pick up in store model, an option growing in popularity and offered by retailers such as Canadian Tire, Best Buy and Loblaw, is particularly vulnerable, according to LexisNexis.
Its 2016 report reveals that 24 per cent of retailers’ in-store “shrink” costs (a term that encompasses theft and merchandise damage) came from buy online and pick up in store transactions.
“Think about it — almost a quarter of the stuff being stolen from that location was brazenly picked up in a face-to-face transaction,” by the perpetrator, Press said.
But chargebacks also are also on the rise as part of so-called friendly fraud. Here, a good is ordered and paid for by a legitimate cardholder who receives the item or doesn’t pick it up from the post office or courier, and then for a variety of reasons might ask the bank to remove the charge from her credit card.
Rather than go through the returns process, customers call their credit card company for a chargeback because, unlike retailers, most banks have 24-hour phone hotlines.
“We have seen friendly fraud increase in the last year by 41 per cent,” said Monica Eaton-Cardone, chief operating officer at Chargebacks911, a Clearwater, Fla.-based firm that helps retailers identify the source of chargebacks and to dispute cases of friendly fraud.
As of the end of the first quarter of 2016, friendly fraud accounted for 72.4 per cent of all gross chargebacks related to online sales, she said.
“We have found that over 80 per cent of customers who contact the bank to get a refund never bothered to contact the retailer first,” Eaton-Cardone said. “The majority of them are not trying to steal or shoplift online, they are actually just doing it because they have been trained that this is an acceptable and easy option for getting a refund.”
Merchants fight fewer than 20 per cent of chargebacks, she said, because it takes up substantial time and money to dispute them. In other words, they just accept them as a cost of doing business.
In an effort to curb online retail fraud, banks have introduced new credit cards and technological measures to verify people’s identities.
One technology involves a dynamic card verification value (CVV) code — the three-digit or four-digit code on the back of credit or debit cards. Such cards have a tiny LCD display that cycles through a new CVV number regularly.
“The CVV number might work for a few minutes, but it won’t for long,” Press said. “It is a heavy infrastructure undertaking for the banks to figure out which card has which CVV at a certain time.”
Another new technology recently rolled out by Bank of Montreal and MasterCard is a “biometric” program for its corporate credit cards in Canada and the U.S. Here, cardholders are asked to verify transactions using facial recognition and fingerprint authentication on mobile devices.
Steve Pedersen, head of North American corporate credit card products at BMO Financial Group, said the cards protect merchants and will also benefit consumers. The biometric card will eventually be rolled out for consumer credit cards, likely by the end of this year.
Such cards help consumers, he said, because even though their bank or the retailer covers their costs in cases of fraud, there is still a convenience cost if the card is blocked in the meantime.
“It is one more way of avoiding those situations where your card doesn’t work,” Pedersen said.
As for Zarify, the high-end gown merchant’s dispute was resolved after eBay opened a case file on the incident and decided in her favour.
“Because of the threat of that particular issue, I pay a lot more for my shipping,” she said. “I make sure that I get a signature on everything, and that extra cost makes a huge impact on profit.”