We think of chargebacks as being a modern inconvenience and a feature of commercial dealings. Yet, documents dating as far back as 1800 BCE show that the concept was already in existence in ancient times. To avoid being accused of theft – an offence punishable by death back then – sellers and buyers demanded and carefully preserved receipts and title deeds. If it was proven that the goods (even those purchased in a legitimate sale) were stolen, the buyer had an obligation to return them to the original owner, but also had a right to charge back the seller.
What is evident from this ancient code of law is that fraud has been an occupational hazard of doing business, from the times of early barter transactions. Since there will always be fraudsters trying to earn a dishonest buck, payment system architects must make fraud prevention one of their key priorities when designing future solutions.
Although chargeback rights are intended to protect buyers from being the unwitting victims of an illegal transaction, they have in fact themselves become a tool for perpetuating fraud. Consumer protection laws, card scheme rules and business practices of banks in some of the largest markets make it almost too easy for a buyer to initiate a transaction dispute; and when they do, existing and upcoming privacy laws make it even more difficult to counteract false disputes.
It seems that, regardless of the obstacles put in place to stop fraudsters in their tracks, they keep on pushing forward, seeking out new avenues in which to thrive. In Europe, the transition to EMV technology and Strong Consumer Authentication (achieved by card schemes through the 3D Secure 2.0 mandate) acts as a frontline defense against online and in-store card payment fraud. But analysts predict that chargeback fraud will become the next scam-of-choice for professional con artists.
Can anything be done about it? Fighting first-time fraudsters will certainly cause extensive collateral damage, harming the legitimate chargeback rights of consumers with a genuine claim, and undermining the online commerce industry as a whole. But, for serial or systemic offenders, the answer may lie in a system of cross-industry, cross-border cooperation, facilitated by the latest distributed ledger solutions, without breaching existing or planned privacy legislation.