The Indian Fintech market is currently the world’s third-largest Fintech ecosystem, behind only the United States and China.
India has 6,636 Fintech startups, making it one of the fastest-growing Fintech markets. The Indian Fintech business was worth $31 billion (INR 3100 crore) in 2021 and is expected to be $150 billion (INR 15000 crore) by 2025. At a CAGR of 20%, the value of Fintech transactions is expected to increase from US$ 66 (INR 6600 crore) billion in 2019 to US$ 138 billion (INR 13800 crore) in 2023.
Fintech-as-a-Service (FaaS) enables any company to use Fintech APIs to integrate financial capabilities into their existing applications, services, and products.
With FaaS, the work of building the infrastructure, integrating multiple licensing and compliance, and disparate financial systems is managed by a third party.
Therefore, businesses can speedily integrate and provide many financial services to customers that were once only available via traditional banking and legacy financial companies.
Merchants in various business niches can use the FaaS offering to access several payment options with just one integration. In addition, merchants can profit from such services, including fraud and chargeback prevention.
Fintech-as-a-Service (FaaS): The Key to Preventing Fraud
While Fintech-as-as-Service evolves, the threat of cybercrime evolves as well. Even in the most secure parts of the internet, cybercrime is a problem.
Today’s cybercrimes are more complex than ever before. Each year, there are an increasing number of data breaches. Personal data such as usernames, passwords, credit card information, and social security numbers are subject to fraud due to these breaches.
Critical information such as the ones mentioned above can drain bank accounts, fraudulently secure products and services, initiate account takeovers, and lead to other frauds.
Furthermore, it is the responsibility of Fintech companies to ensure that they are familiar with their customers and obtain the necessary regulatory information when they onboard.
This is accomplished through the use of secure verification mechanisms. As a result, fintech companies and traditional financial institutions that invest in and implement new technologies bear a significant responsibility to their customers to avoid fraud and maintain compliance.
Fraud and Chargebacks: A Growing Problem
Traditional authentication techniques are no longer sufficient. Criminals may easily guess passwords and bypass security questions using the internet and social media.
As a result, businesses are increasingly employing innovative technologies to combat cybercrime. However, as security measures become more advanced, cybercriminals become more sophisticated.
According to Cybersecurity Ventures, Global cybercrime expenses are expected to rise 15% each year over the next five years, reaching $10.5 trillion USD annually by 2025. That means Fintech firms must keep ahead of the curve by implementing cutting-edge security measures.
Friendly or chargeback fraud occurs when a cardholder contacts the issuer (instead of the merchant) to contest a legit charge to get a refund while keeping the item(s).
For example, a cardholder could claim that they never ordered the item in question or that it was never delivered. Whatever the claim, it is challenging for an issuer to establish anything other than what the cardholder is reporting; thus, the issuer will apply a chargeback to keep the cardholder pleased.
Sift, a leader in digital trust and safety, published its Q4 2021 Digital Trust & Safety Index, which found that nearly one-fifth (17%) of consumers who have filed a chargeback dispute have engaged in “friendly fraud”—knowingly filing false fraud claims on legit purchases—to recover their money.
According to the survey, one out of every ten chargeback filers admits to engaging in “friendly fraud“ to obtain money back on holiday purchases. Based on the data from Sift’s worldwide network of over 34,000 apps and sites and a survey of over 1000 US consumers, the report analyses how chargeback fraud has grown significantly over the past year along with the digital commerce surge.
More than half of the consumers (42%) said they filed a dispute because of genuine fraud, such as unauthorised purchases made with their card details.
Cancelling a subscription (23%), a product or service not being as specified (21%), a product or service coming late or not at all (19%), or a refund never being received are all common grounds for registering a dispute (18%).
While a subscription cancellation may appear innocuous, it can lead to significant chargeback losses for the merchant if customers opt to challenge the transaction with their financial institution rather than the company.
According to Sift’s findings, 65% of customers have questioned a purchase at some point, with 62% doing so in the last year and 86% saying they are more than likely to do so.
Consumers most regularly file disputes for items purchased with omnichannel stores and eCommerce merchants, with 26% and 24%, respectively, claiming to do so.
How Can Fintech-as-a-Service Overcome Fraud and Chargeback Fraud?
Although it is widely acknowledged that chargebacks cannot be avoided entirely, merchants should strive to build solutions that will help them avoid chargebacks while also automating the representation process.
Chargeback resolution necessitates integrated tools and as much automation as feasible to collect and filter data properly.
Sifting through a sea of daily transaction data to spot chargeback red flags is beyond most businesses’ manual capacity. That is why chargeback systems must allow merchants to zero in on specific areas of concern and then provide quick access to evidence if they wish to respond to a dispute.
For instance, merchants can use a Fintech-as-a-Service platform that complies with stringent security standards, such as PCI DSS (Payment Card Industry Data Security Standard), instead of establishing their payment gateways and dealing with a lot of red tapes.
Visa and Mastercard developed authentication solutions like 3D Secure to improve the security of the card acquisition process and protect businesses from chargeback liability. Instead of chargebacks settling on the merchant’s shoulders, this authentication technique transfers the liability to the card issuer.
Merchants also need to keep up with new chargeback explanation codes to defend themselves if something goes wrong adequately. For example, if a customer claims the charge was fraudulent, but the retailer possesses evidence to the contrary, the merchant can dispute the customer’s claim and potentially overturn the chargeback.
Keeping track of chargeback reason codes can also help you figure out why customers are requesting chargebacks in the first place if there is a repeating theme for which you can find a solution.
Furthermore, when businesses invest in fraud protection technology, it helps identify chargeback frauds before they occur by identifying high-risk transactions.
It also enables the business to create custom rules for transactions it will and will not accept, whether it is concerned over blocked countries or specific IP addresses. Having always-on fraud protection can significantly minimise the overall risk of fraud-related disputes.
Signatures and receipts can provide some of the best evidence for challenging chargebacks. However, keeping detailed records of transactions, particularly when a business has physical records, will aid in the long run.
Unfortunately, physical documents or signatures are not always possible with the expanding volume of eCommerce-based transactions. In this situation, preserve records or use a technological solution to keep records around card-based transactions, including the transaction’s date and time and the IP address from which the transaction originated.
The Bottom Line
In today’s digital economy, many transactions occur without a card, increasing the risk of chargeback fraud.
Because merchants almost always receive favourable dispute resolution rulings, it is more crucial than ever for them to take control of the situation by preventing fraud from the outset.
Whether by protocol process training, developing more open channels of contact with customers, or investing in fraud prevention technologies, Merchants must be aware of this increasing threat to their bottom line.
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