- June 18, 2013
- Posted by: Seth Heyman
- Categories: Business Law, Internet Law
It’s been said by many a retailer that business would be great if it weren’t for the customers. Sure, customers are often unreasonable and demanding, and will not hesitate to post their negative opinions (however unjustified) on every consumer blog they can find, but the real cause of this love-hate relationship lies with fraudulent chargebacks, otherwise known as “friendly fraud.”
When a customer initiates a chargeback with their credit card issuer, funds paid for a product or service are reversed and credited to the consumer’s account. There they remain until the issuer completes an investigation and decides whether the customer should keep the funds or they should be credited to the retailer.
By and large, chargebacks are a good thing, as they provide retailers with an incentive to ship products and issue timely refunds. Even more important, chargebacks also provide a means for reversal of unauthorized transfers due to identity theft.
If only things were that simple. There are simply too many cases of friendly fraud, where the transaction was authorized by an unscrupulous customer who then claims otherwise, and initiates a chargeback in order to avoid paying for the product or service (in effect, a forced refund). Friendly fraud costs retailers and credit card issuers millions of dollars in manpower lost investigating and fighting illegitimate chargebacks.
iVeriFly, Inc., a California-based Internet technology company, means to change all that.
Currently, online merchants and service providers have no choice but to rely upon the accuracy of the contact information that their customers provide to them; a fundamental flaw that facilitates nearly every form of Internet fraud, including illegitimate chargebacks.
Consumers win chargebacks by falsely claiming they did not authorize the purchase for one main reason: retailers send receipts and confirmations to whatever e-mail address their customer provides. How are they supposed to know whether it’s the customer’s actual address? If a customer purchases a product using a fake e-mail address, they can claim they never authorized the purchase and win the chargeback dispute. If they have the product sent to a dummy physical address, they will also be able to keep the product.
iVeriFly’s patent-pending system is brilliant in its simplicity. When a consumer makes an online purchase, the system generates a series of questions based on his or her unique record gleaned from proprietary consumer databases. Before a purchase can be completed, the retailer sends the customer an e-mail containing these questions, all of which have to be answered correctly in order to complete a transaction. Because actual credit card holders are the only ones able to answer these questions, they will have a hard time arguing that they they never authorized a purchase. iVeriFly not only protects retailers from their unscrupulous customers, it also blocks fraudulent transactions initiated using a stolen credit card, which also protects consumers from the devastating consequences of the crime of identity theft.