"Fraud Crisis Threatens Merchants: System Overhaul Urgently Needed"

Merchants face a major challenge with defining fraud, beyond phishing and deepfakes. Financial regulators adhere to international standards, emphasizing criminal intent and harm. Friendly fraud, where cardholders exploit chargeback systems for convenience, poses a significant issue, misrepresenting true fraud cases.

Card schemes’ policies force merchants to accept false fraud claims without a chance to dispute. The lack of investigation or accountability for alleged fraud highlights a flawed system. Rigorous KYC measures are in place, yet the true perpetrators of fraud are often the cardholders making false claims.

Visa’s Acquirer Monitoring Program penalizes acquirers and merchants for high fraud levels, which may actually be mislabelled friendly fraud. Smaller acquirers disproportionately affected by VAMP’s design face fees and restrictions. Regulators’ misunderstanding of subscription-based chargebacks as fraud can harm honest businesses.

The industry must rethink how it handles consumer disputes and defines fraud. Suggestions include enabling subscription cancellations in banking apps, creating a new chargeback category for disputes, requiring evidence for fraud claims, and allowing merchants to respond to claims. Regulatory oversight is needed to ensure fairness and compliance.

The current fraud programmes by card schemes punish acquirers for chargebacks caused by cardholder behavior without recourse for merchants. Financial authorities and card schemes must establish a new framework that differentiates criminal fraud from consumer disputes, holds bad actors accountable, and preserves trust in financial institutions.

Without reform, the system will continue to incentivize fraud, stifle innovation, and discriminate against smaller players. Johannes Kolbeinsson, CEO of PAYSTRAX, addresses the silent crisis facing merchants due to the broken fraud system. A new approach is crucial to protect all parties involved in financial transactions.

Read more at Yahoo Finance: The broken system fuelling a silent crisis for merchants