Family Fraud

Am I Losing My Digital Sales to a Family Fraud Chargeback?

How Do In-App Chargebacks Relate to Family Fraud?

The lack of positive identification is a major obstacle for card-not-present merchants. It’s even more complicated when an unauthorized purchase isn’t made by a fraudster, resulting in a family fraud chargeback. So how can you tell if this problem is siphoning-off your revenue stream?

Could Kids Be Robbing You of Millions?

In April 2017, major eCommerce retailer Amazon resolved thousands of consumer complaints with the FTC. The company agreed to refund customers more than $70 million for purchases authorized by family members of cardholders, but not by the cardholders themselves.

The culprit behind this kind of unauthorized transaction is often a child with access to a parent’s card information. In-app purchases are especially vulnerable to this kind of so-called “family fraud.”

Most in-app purchases are micro-transactions totaling less than $5, but these sales add up quickly. If kids can make micro-transactions, they may easily spend upwards of $100 before parents become aware of the situation. This translates to tens of millions of dollars lost every year because of in-app chargeback claims.

But cardholders don’t believe they’re to blame for those costs. According to them, the responsibility belongs to merchants who should have put stronger verification standards in place to prevent the abuse of their platforms.

Why Should I Be Held Liable?

If you’re thinking that doesn’t seem fair, you’re right—merchants should not technically be responsible for these sales. However, banks tend to side with cardholders in these cases anyway. It can be difficult to prove that you’re not responsible for the unauthorized sales.

This creates a “rock and a hard place” dilemma for merchants. If standards for user authentication are too tight, the seller’s rate of shopping cart abandonment will rise. But if standards are too loose, family fraud can easily spiral out of control. The only real answer is to be proactive and balance authenticating users against pressure to reduce transaction friction.

Some of the best strategies to protect your business against a family fraud chargeback include the following:

Round-the-Clock Customer Service

24/7 customer service should be any merchant’s first line of defense against an in-app chargeback. This is true across multiple service channels including phone, email, and social media. An all-hours response can be managed by an in-house team or a third-party answering service.

You may even utilize a combination of the two approaches: create an in-house team to manage most customer contacts, then work with a third-party service to handle overflow or after-hours communication.

Validate Receipts

Most major app stores have a receipt validation option, which can confirm each of your digital sales. That means you’ll have proof tying any given transaction directly to the account associated with the card on file. This way, you have a clear record of the sale directly from your own server … evidence that the transaction is valid in the event of an in-app chargeback.

Remind Users to Adopt Parental Controls

Operating systems associated with all the most popular mobile devices—including iOS, Android, and Kindle—all allow users to define their own parental control rules. It seems counterintuitive to encourage tools that block sales, but this may save a lot of headaches in the long run by preventing a costly family fraud chargeback.

You can gently remind users that a product involves in-app purchases. It’s also a not a bad idea to add information to your site with simple instructions for disabling or restricting these transactions if parents don’t want to give kids the option.

Seek Professional Help

Family fraud is closely related to friendly fraud. Both are extremely difficult for merchants to identify and fight on their own. In most cases, the best solution is to seek outside expertise. Enlisting the help of experts is the most cost-effective way to develop an effective long-term strategy for family fraud and other chargeback sources.

Even if you’re currently seeing just a few chargebacks per month, engaging outside expertise can help prevent chargebacks from ever becoming a problem.

Start Your Search for Expertise Here

Want to know how in-app chargebacks can affect your bottom line? Curious about the details of a strategic family fraud solution? Contact us today to learn more and start minimizing these threat sources’ impact on your bottom line.