Addressing Chargebacks in the Telecom Industry

The global telecom market is expected to grow at a compound annual growth rate of 5.4% over the next six years. However, with that growth comes an increasingly difficult and complex chargeback problem for what is a high-risk industry. Telecoms have long been susceptible to many forms of fraud. But the rise of card-not-present payments in the digital economy has come with an inevitable rise in payment disputes and friendly fraud that have had a profound impact on businesses' profitability.

Chargebacks were created as a mechanism to fairly resolve payment disputes between merchants and customers and to offer protection to consumers against fraudulent activity. Now that chargebacks are becoming both a tool for defrauding merchants as well as a means to temper the damage fraud does to consumers, it has become more important than ever for telecom providers to understand how to effectively manage chargebacks and minimize their financial impact.

What are telecom chargebacks?

Telecom chargebacks are disputes filed by cardholders against telecom providers for transactions that they feel were unauthorized, incorrect, or otherwise fraudulent. In many cases, these chargebacks are filed because the cardholder didn't recognize the charge on their statement or they believe that they were billed for telecom services that were never received. However, fraudsters have also turned to chargebacks as a way to exploit the process and extract money from telecom providers. With telecom providers offering a range of digital goods, services, and subscriptions, fraud has become a growing threat to the industry. Subscription fraud, for example, is one of the most common types of fraud in the telecom industry, and can be difficult to detect and prevent. This form of fraud occurs when a fraudster signs up for a telecom service using stolen or synthetic identity information and then discontinues use of the service after receiving the first bill. The growing rate of fraud in the industry has been brought on by a number of factors, including the proliferation of digital identity information and the ease with which it can be obtained and used to commit fraud. The accelerating rate of data breaches and the use of single contact points for verification have also played a role.

What are the consequences of telecom chargebacks?

Chargebacks have had a significant financial impact on telecom providers due to their frequency and the high value of many telecom services and products. The increase in chargeback volume has occurred across all revenue streams including voice, data, equipment, and content. Providers are also seeing a rise in friendly fraud, which is when cardholders knowingly file chargebacks for services they received and used. In addition to the direct financial losses from chargebacks, telecom providers also incur indirect costs associated with managing chargebacks, such as customer service expenses and lost productivity. It's estimated that in total telecom fraud, including fraud not related to chargebacks, costs the industry $32 billion annually with this number expected to continue to grow as fraudsters become more sophisticated and telecoms continue to expand their digital offerings.

Telecom chargebacks can also lead to merchant account closures, which can be devastating for businesses that rely on credit and debit card payments to survive. While not directly related to chargebacks, false declines are also a major issue for telecom providers. False declines occur when a legitimate transaction is declined by the card issuer due to suspected fraud. This can have a significant impact on revenues, as well as customer satisfaction, and retention.

How can telecom providers reduce chargebacks?

Telecom providers must take a proactive approach to reducing chargebacks and managing fraud. This starts with understanding the root causes of chargebacks and implementing strategies to prevent them. Telecom providers should also have a chargeback mitigation plan in place to identify and resolve issues quickly when they do occur. Some common chargeback prevention and mitigation strategies for telecom providers include:

• Educating customers about the proper use of chargebacks
• Verifying customer identity and billing information (AVS, CVV, 3DS2)
• Implementing fraud detection and prevention tools
• Signing up for a chargeback prevention alerts service
• Improving customer service to resolve issues before they lead to chargebacks
• Working with a chargeback management company to recover lost revenues and improve chargeback ratios

The bottom line

Telecom chargebacks are a reality of doing business in today's world. By understanding the root causes of chargebacks and implementing chargeback prevention and mitigation strategies, telecom providers can minimize their financial impact and protect their business from the damage that chargebacks can cause. Telecom providers must also be vigilant in monitoring for fraud and taking steps to prevent it. This includes verifying customer identity and using fraud detection tools that combine data-analytics with machine learning. Taking these steps will help telecom providers reduce their exposure to chargebacks and false declines, and protect their business from the financial losses they can cause.

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