Fraud is already a complex challenge, but merchants face an additional hurdle: first-party fraud perpetrated by their own customers. Unlike second- or third-party fraud, first-party fraud occurs when consumers use their legitimate payment credentials to commit dishonest acts for personal gain. This creates a significant challenge for acquiring banks and payment service providers (PSPs) in assisting merchants with fraud prevention.

To effectively support merchants, acquiring banks must develop a thorough understanding of how first-party fraud operates. This article explores how acquirers and PSPs can help merchants mitigate first-party fraud and protect their profits.

What is First-Party Fraud?

First-party fraud involves a consumer intentionally defrauding a merchant for personal or financial gain. In these cases, the consumer obtains goods or services without paying for them. Customers may commit this type of fraud for various reasons, discussed below.

Often referred to as "friendly fraud" or "first-party misuse," industry leaders like the Merchant Risk Council advocate using the term “first-party misuse” to emphasize the seriousness of these actions. The rationale is simple: there’s nothing friendly about fraud. Over time, “first-party misuse” is expected to replace “friendly fraud” as the standard term.

First-party fraud (or misuse) is particularly challenging for businesses because it originates from legitimate customers, complicating detection and prevention efforts. It’s akin to realizing that “the call is coming from inside the house.”

Three Key Steps to Prevent First-Party Fraud

First-party fraud is particularly difficult to address because it involves previously legitimate customers. Acquiring banks, PSPs, and merchants can adopt the following strategies to minimize losses:

Track and Monitor Chargebacks

Merchants and acquiring banks should track chargeback activities to identify patterns of suspicious behavior. Maintaining detailed records of chargebacks, refunds, and returns can help assess whether a customer’s behavior is part of a larger trend. Investing in robust customer relationship management (CRM) systems and fraud monitoring tools is essential.

Facilitate Connections to Card Networks

Acquiring banks can leverage their relationships with card networks to help merchants handle disputes more effectively. Services like Verifi and Ethoca offer automated solutions for managing and preventing chargebacks resulting from first-party misuse.

Use Clear Billing Descriptions

Confusion over unclear billing descriptions often leads to disputes. Acquiring banks can assist merchants in aligning their billing descriptors with card network guidelines. Using recognizable trading names or “trading as” (T/A) identifiers on statements can reduce misunderstandings and disputes.

To Know More, Read Full Article @ https://ai-techpark.com/first-party-fraud-insights/

Related Articles -

AI Trust, Risk, and Security Management

Evolution of Lakehouse Architecture