How to beat online sellers’ fastest growing problem: Chargeback fraud
More online sellers are becoming victims of mass fraudulent buying, new research from King’s Business School reveals. The researchers provide vital advice for users of e-commerce platforms like eBay on how to protect themselves.
Professor Stuart Barnes and his co-authors have created a conceptual plan that aims to reduce the huge losses online retailers suffer from chargeback fraud – which occurs when buyers claim a refund for purchased items without returning them, typically on the basis of unfounded excuses such as “items not delivered” or “transactions unauthorized”.
“With vast numbers of SMEs selling products and services online to buyers all over the world, Chargeback Fraud has become a growing and massive problem in global e-commerce. Billions of dollars are lost every year,” says Barnes, “yet existing research has focused on the notion that buyers are subject to opportunistic sellers.”
The researchers discovered an urgent need to protect sellers from the fraudulent behaviour of buyers – recommending lobbying and putting pressure on financial institutions to reduce lengthy chargeback periods. Currently, buyers can contact their banks to exploit a credit card protection policy that allows them to reverse charges for many months if they are not satisfied with the ordered items.
Based on a survey of over 400 online sellers on DHgate.com, one of the major cross-border e-commerce websites connecting SMEs in mainland China with overseas buyers, the researchers developed and tested a model that identifies a set of operational measures to enhance sellers’ trust and reduce their perceived risk, particularly through greater transparency of a buyer’s identity, signature mechanisms – such as smartphone fingerprint apps, and more effective tracking of goods in transit.
This is particularly important because, unlike face-to-face transactions in store where the credit card institutions take full responsibility in disputes, an online merchant is held accountable for the loss of delivered items despite measures taken to verify the transactions.
This research by King’s Business School was carried out with Hohai University, University of Alabama and Kent State University, and published in the Information Systems Journal.