COVID-19 Chargeback Fraud

Table of Contents

1. How is COVID-19 impacting chargebacks in 2021?
2. What kinds of COVID-19 fraud are we seeing?
3. How can you protect yourself from COVID-19 chargebacks?
4. How Visa is approaching COVID-19 chargebacks
5. How is American Express approaching COVID-19 chargebacks?
6. How is Mastercard approaching COVID-19 chargebacks?
7. The future of fraud
8. Why do companies hate chargebacks?
9. Will chargebacks go back to normal after COVID-19?
10. Can customers chargeback digital orders?

The coronavirus pandemic drastically changed life as we know it for merchants and customers alike, closing stores and restaurants and turning many people to online shopping. It also caused a massive spike in chargebacks as customers fought to get their money back for travel bookings they could no longer keep and purchases they could no longer afford.

Unfortunately, fraudsters never let a good crisis go to waste, and a number of new coronavirus-related schemes and scams have popped up to try to separate people from their money.

While the availability of vaccines in wealthy countries means the lockdowns have ended, the combination of vaccine hesitancy and the delta variant means the virus itself is far from finished. Don't expect the fraudsters exploiting it to go away anytime soon either.

The fraudsters know that there are a lot of people shopping online at the moment who are still fairly new to eCommerce, and they’re pulling out all the stops to trick and deceive them. We’ll leave it to others to judge what kind of person would be scamming frightened people and stealing their money in the midst of a deadly global pandemic — let’s focus on the types of schemes law enforcement has been seeing and what kinds of defenses can be raised against them.

How is COVID-19 impacting chargebacks in 2021?

COVID-19 has been a constant presence in our lives for over a year now, including during the 2020 holiday season. In the first several months of 2021, we saw a significant uptick in chargebacks for purchases made over the holidays.

While that spike has now settled down, most merchants are still seeing more chargebacks than they would expect in an ordinary year, and there are no indications that this trend will change anytime soon.

Why is COVID-19 such a force for chargebacks?

1. People are desperate. The lockdowns have been hard on people, and many are facing loss of employment, eviction, and a lack of basic necessities. Accordingly, people are looking for ways to save money or get what they need to keep a roof over their heads, and committing fraud becomes tempting.
2. Card-not-present (CNP) transactions are more common, as many people got used to online shopping during lockdowns. This means that there are more targets for fraudsters, and more opportunities for customers to commit friendly fraud.

What kinds of COVID-19 fraud are we seeing?

The U.S. Department of Justice has reported a variety of pandemic-related fraud schemes that criminals are using to try to separate people from their money.

One of the most common threats is phishing. While phishing has been around for a long time, COVID-19 has offered new pretenses fraudsters can use to try to convince people to download malware or give up personal or payment information.

Some phishing emails claim to be from the World Health Organization or some other respected public health agency, asking recipients to click a link to see (for example) information about COVID-19 infections in their area. In reality, the link is a malware download.

Others ask people to enter personal information in order to schedule a vaccine appointment, or pretend to be the IRS and threaten legal consequences if the victim doesn't return part of the stimulus payment they received.

Some fraudsters are also using the information from vaccination cards people have posted photos of on social media to commit identity theft, since many of these cards include the person's name, date of birth, and social security number.

There have also been reported cases of fraudulent websites claiming to sell masks, hand sanitizer, coronavirus tests, or other pandemic-related goods. When a customer enters their payment information to make a purchase, the fraudster gets both the money and valid payment credentials they can use to make other fraudulent purchases.

How can you protect yourself from COVID-19 chargebacks?

Regardless of your industry, make absolutely certain that your customers receive a copy of your return policy and your terms & conditions at the time of transaction. Now would also be a good time to invest in more effective fraud prevention tools.

For merchants who strive to build consumer confidence in eCommerce by being trustworthy and providing quality products and excellent customer service, it can be frustrating to see cyber-criminals undermine all that work and sow distrust in online shopping by running scams like these — especially when that damaged trust leads to things like “friendly fraud” chargebacks.

Many customers, once burned by a scammer, are a lot less likely to give legitimate merchants the benefit of the doubt when dealing with a mistake or misunderstanding.

Merchants must be truthful and transparent with their customers when it comes to stock availability, delivery times, possible delays, and other issues that could lead to a dispute.

It’s better to miss out on a sale than to over-promise, fail to deliver, and end up with a chargeback on your hands. Plus, the more customers get used to seeing merchants practice transparency and disclosure, the easier it is to draw a contrast with the shady fraudulent merchants and recognize their false promises for what they are.

If you’re getting new customers or seeing increased business as a result of the pandemic, this is a good time to update and publicize your terms and conditions, make sure your merchant descriptor is clear and accurate, and to be lenient and generous with your return and refund policy.

Merchants can also help to educate their customers about known fraud schemes they are likely to encounter, and remind them that no reputable business will ask their customers for passwords or personal information over email. But of course, merchants aren’t really in the position to serve as the first line of defense against online fraud — so what about the institutions that are?

How Visa is approaching COVID-19 chargebacks

Visa's main coronavirus-related efforts have focused on providing guidance to merchants and increasing their monitoring of the dispute process. Near the beginning of the pandemic, Visa made a public statement about managing disputes during the pandemic. An excerpt from this statement reads as follows:

"Visa expects our clients to act in good faith and make every effort to be flexible when resolving disputed transactions involving cardholders and merchants. Our expectation is that cardholders work directly with the merchant to resolve their issue, ahead of initiating a dispute with their issuer. "
— Visa Business News

Visa also implemented the Coronavirus Chargeback Dispute Monitoring Program beginning in April of 2020 to help maintain the integrity of the dispute process by reducing invalid disputes initiated into the system.

The program will monitor daily dispute volumes with a focus on customer disputes, and will flag any practices that may be inconsistent with current Visa dispute rules.

If necessary, Visa will require issuers to reverse invalid disputes. A summary of the program is as follows:

• Any issuer submitting more than 50 invalid disputes daily will be flagged by the program.
• Issuers flagged by the program will be required to reverse all invalid disputes within three business days.   
• Failure to reverse invalid disputes and/or repeated flagging could result in non-compliance assessments
• The Visa Dispute Monitoring Program (VDMP) and Visa Fraud Monitoring Program (VFMP) are suspended for merchants in the travel & entertainment (T&E) MCC’s through the July 2020 compliance cycle.
• The Visa Acquirer Monitoring Program will also be suspended for disputes arising from T&E merchants through the July compliance cycle.  
• Regional Risk teams are also empowered to suspend and/or waive VDMP or VFMP fees for non-T&E merchants that can demonstrate they have been directly impacted by the pandemic.

Visa also issued a brief list of frequently asked questions to provide additional information to merchants.

How is American Express approaching COVID-19 chargebacks?

American Express has been very proactive about this and thoughtfully provided us with some information about how they’ve adjusted their merchant policies during this time:

• Contactless Payments: In order to minimize physical interactions during card-present transactions, the threshold for contactless payments has been raised in various markets, with more to come.
• No signature required: While signatures were not previously required at the point of sale, American Express has been reminding its merchants that it is not necessary to make customers sign for their transactions.

American Express has also been encouraging its members to patronize small and local businesses that were disproportionately impacted by the lockdowns.

They assured us that they are monitoring the coronavirus chargeback situation and will continue to assess potential policy changes as needed. We fully expect that other card networks are engaged in the same processes and will provide guidance for their merchants and customers in the days ahead.

How is Mastercard approaching COVID-19 chargebacks?

Mastercard's main change to their dispute processing rules was previously scheduled, and not a response to the pandemic. According to the new rule, Issuers will now pay $15 for initiating a pre-arbitration and the acquirer will be billed $50 for receiving a pre-arbitration, which will be passed to the merchant.

Mastercard did however launch their Digital Doors initiative, which offers help to small businesses looking to enter the world of eCommerce for the first time.

The future of fraud

Nobody can say for certain at this point how long our lives will be shaped by the need to avoid COVID-19 or what the ultimate social and economic impact will be. In the meantime, we must all do what we can to protect ourselves, our loved ones, and the communities we live in.

That means being vigilant about fraud, educating others on how to avoid it, and making our best effort to support both the small businesses and the everyday customers all around us. Crime and fraud don’t pause themselves for pandemics and other global catastrophes — quite the opposite, in fact. It’s still as important as ever to fight fraud and illegitimate chargebacks so that customers have financially healthy merchants and a thriving eCommerce ecosystem to look forward to when all this is over.

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