Understanding and Tackling MOTO Fraud and MOTO Chargebacks

Customers have historically preferred shopping from brands offering the highest convenience and accessibility. This has led merchants to innovate and explore different ways to offer a frictionless experience to customers. Before the advent of one-click online shopping popular today, merchants innovated and introduced shopping convenience through MOTO transactions.

What is a MOTO transaction?

A MOTO or Mail Order/Telephone Order (MOTO) transaction is a card-not-present (CNP) transaction made either by sending it in through the mail or making a phone call. Executing these transactions doesn’t require the customer’s physical presence at the time of the transaction. Instead, merchants request specific payment and shipping address details to process the order remotely.

MOTO transactions have existed in the US since the 19th century.

• Way back in 1845, Tiffany's Blue Book offered a service that mimicked MOTO.
• In 1872, Aaron Montgomery Ward started a MOTO service that grew into a 540-page illustrated catalog.
• With the advent of the telephone, it became even easier for customers to purchase their desired products by placing a call.

Over the decades, MOTO transactions have evolved a fair bit. Although merchants primarily focus on online sales today, MOTO transactions are necessary to process orders when online shopping isn’t possible.

How MOTO transactions take place today

MOTO transactions typically take place in the following manner:

• The customer contacts the business's sales team or customer care center, and a sales opportunity arises.
• The customer shares their payment information with the support team.
• The agent reconfirms basic details like the ZIP code, customer's card number, expiration date, and CVV number.
• These are used to process the payment and confirm the order.

It may seem like the same result with a credit card being charged for a purchase. However, it’s essential to note the differences.

Differences between MOTO card-not-present (CNP), online card-not-present (CNP), and card-present (CP) transactions

• In card present transactions, customers physically present a card while making a purchase. Customer verification is straightforward and relatively more secure, relying today on EMV chip card authentication and a dynamic cryptogram.
• In comparison, customers enter card information online through a secure PCI-DSS-compliant payment gateway during an online CNP transaction. Though CNP transactions are more vulnerable to chargebacks than CP transactions, they are more secure than MOTO transactions, as payment gateways have inbuilt mechanisms to detect fraud.
• With MOTO CNP transactions, customers provide payment information remotely. Although there is some customer information verification, it isn’t watertight. This is the riskiest of the three types of transactions mentioned here.

Enabling MOTO transactions provides several benefits for merchants, including:

• Increased fraud risk: MOTO transactions have a higher risk of stolen payment information. Verification of customer identity isn’t straightforward over mail or over-the-phone orders.
• Higher chargeback risk: Increased instances of fraud translate to higher chargeback risk, which commonly adds up as a merchant liability. Furthermore, representing fraudulent chargebacks becomes more complicated without proper proof. For example, in the case of telephone-based orders, it is cumbersome and costly to both record the purchase conversation and include it in the representment package sent to the issue. This usually results in difficulty defending and resulting losses accruing to merchants.
• Fraud liability: With in-person transactions made using EMV chip cards, fraud liability usually rests with the credit card issuer. However, with MOTO transactions, the responsibility commonly defaults to the merchant.
• Difficulty in fighting MOTO friendly fraud chargebacks: Friendly fraud is an increasingly common occurrence in the U.S. and other major markets. In the case of MOTO friendly fraud chargebacks, the situation is tougher for merchants to fight. That’s because it is harder for merchants to gather enough compelling evidence in an offline environment to convince issuers that they held up their obligations and are not liable MOTO chargebacks. For example, in the case of telephone-based orders, it is more cumbersome and costly to both record the purchase conversation and to include it in the representment package sent to the issuer. Usually, issuers are more likely side with the cardholder for MOTO orders than online orders as they know these transactions are less secure and more likely to be subject to genuine fraud.

Best practices for merchants processing MOTO transactions

Overcoming the challenges of MOTO transactions and effectively preventing MOTO fraud requires a multifaceted approach. Some helpful interventions include:

• Using Address Verification Service (AVS) to compare the billing address shared by the customer with the card issuer’s database. Any discrepancies here can signal potential fraud.
• Requesting Card Verification Value (CVV) to add an extra layer of security, increasing the odds of ensuring the physical possession of the card.
• Using Fraud Detection Tools to analyze transaction patterns and identify real-time suspicious activity.
• Enabling Two-Factor Authentication (2FA) by requiring users to provide a second form of verification beyond passwords, such as a code sent to their mobile device, increases security. This is effective for phone-based orders.
• Employing Machine Learning and AI capabilities helps detect patterns and anomalies in transaction data that may indicate fraud. This is possible by creating risk-scoring systems assessing various parameters of a transaction, such as location, device used, and purchasing behavior
• Securing sensitive information through encryption and tokenization ensures that even if data is intercepted, it remains unintelligible to unauthorized parties.
• Providing ongoing training for customer care center employees on identifying and responding to fraud

To summarize, offering MOTO transactions to customers is sometimes a good idea for businesses to boost sales. However, it comes with its risks that need adequate mitigation efforts.

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