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Friendly Fraud and the Failure of Chargeback Protections

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Friendly Fraud and the Failure of Chargeback Protections

Chargebacks were originally designed to protect consumers. Today, it’s ironic that merchants often need protection against this very system put in place to protect consumers. A chargeback is the return of funds to the consumer, by the bank, to settle a debt. In the event of a filed chargeback, the bank then forcibly removes funds from the merchant’s bank account to “repay” the consumer.  

Chargebacks have long been a hindrance to e-commerce companies, sparking a rise in fraudulent behavior among consumers who attempt to defraud a company for their own monetary gain. While the payments sector grapples with bad actors, innocent consumers often get caught in the crossfire. 

Friendly fraud — also known as chargeback fraud — occurs when a customer files a chargeback instead of attempting to obtain a refund from the merchant. In some cases, such as when the goods were not received or not as described, the request for a refund is genuine. The very same cases may drive buyers to take shortcuts in their desire to avoid the archaic, tedious processes often associated with recourse. As friendly and malicious fraudsters adopt the same methods of getting a refund, attempting to distinguish between them is futile. 

Defining friendly fraud 

Friendly fraud is an honest mistake by a consumer, most commonly involving genuine forgetfulness or unknown purchases by family members. On the other hand, the desire to steal from the merchant fuels chargeback fraud with malicious intent. 

Chargebacks were introduced to protect consumers who operate in good faith. In the event that a scammy merchant has successfully convinced a buyer into paying for goods or services, chargebacks ensure that the buyer is not out of pocket should the goods arrive faulty, are counterfeit, or do not arrive at all, as is sometimes the case.

Eventually, this trust in customers was abused, and fraudsters found that they could fool the bank into issuing a chargeback on the basis that they didn’t receive goods or their card was used by someone else. In this case, the buyer receives money from the bank (which then charges the merchant) and keeps the goods. 

Financial identification: discretion and security

Chargebacks were introduced when e-commerce was an undeveloped concept. Purchases were made in traditional brick-and-mortar stores and credit cards were kept in physical purses and wallets. Unfortunately, what was once an industry that thrived off good faith now fosters fraudulent activity. Credit card information stored on numerous online accounts, apps and devices only heightens the potential for merchants to scam buyers.

The Truth in Lending Act, the foundation of the chargeback, was drafted back in the 1960s. Consider how commerce and consumer habits have been revolutionized in the last decade, not to mention the last six decades. This archaic act has failed to stymie chargeback fraud, thus proving that outdated regulation cannot be effective when the entire shopping landscape itself has changed. However, it’s not solely the legal regulations that have become outdated. 

The core issue: outdated payments systems 

Banks and outdated payments systems are the problem. In theory, the issuer of the chargeback thoroughly investigates every claim a cardholder files. In reality, banks are being overtaxed by the rapid rise in overall chargebacks, lacking resources such as time, money and modern verification systems to meet the influx of claims. This squeeze on the issuer means claims are not sufficiently reviewed and little evidence is required to submit the chargeback to a merchant’s bank. This inability to verify the legitimacy of each chargeback creates a twofold problem: While merchants are getting hit with more unnecessary fees and damage to their credibility, banks are essentially showing consumers that filing a chargeback has no repercussions. 

The issue at the root of the chargeback predicament is that people still have to expose their financial information to pay for goods and services online. This giant loophole creates more opportunities to commit fraud.

What is being done?

It’s evident that both parties need to be protected. Online payment system companies such as PayPal and Stripe have endeavored to make e-commerce safer for everyone involved. Stripe even introduced a chargeback protection service in June 2019, promising to “reimburse the disputed amount and waive dispute fees.” This benefits both the consumer and the merchant. The consumer gets their payment, and in the merchant’s case, the service especially useful in trying to stabilize cash flow. Having money removed from an account before the opportunity to dispute the fraud makes it impossible to obtain smooth cash flow. 

Technically, merchants have the right to challenge chargeback claims, however, disputing a chargeback is a complicated and time-intensive process, and the odds of a merchant succeeding in getting a chargeback reversed are very low. With the damage already done and regardless of whether the case was friendly fraud or chargeback fraud, in the eyes of the bank, the merchant is guilty until proven innocent. 

The merchant must shoulder the burden of validating the original transaction, and what’s more, there is nothing merchants can do to stop bad-acting cardholders from repeating this behavior. As financial information has been disclosed, scammers can easily hack into these centralized databases and access someone else’s card details. The exposure of this information and the storing of financial details makes it too easy to keep conning buyers. Significant security breaches have occurred time and time again — the Marriott hotel’s breach, in which hackers gained access to the personal information of an estimated 500 million customers, is just one of the scariest in recent years. 

However, a potential alternative solution does exist. With cryptocurrency payments, financial information is secure, meaning there is no risk of the buyer being frauded via identity theft, for example. The inherent immutability of blockchain technology means transactions are final for the merchant, eliminating chargeback fraud. Furthermore, the ability to instantly record information could spell the end of fraud by improving security, making hacking and faking almost impossible. The opportunity to record information on a tamper-proof ledger could eradicate issues that have burdened merchants and customers alike for years. 

There is a catch, however — neither the bank, the merchant nor the buyer can solely remedy the issue on their own. Creating an entirely new landscape for payments based on security that does not require chargebacks is the next step toward fostering mutual trust across a fragmented industry. 

The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

Filipe Castro holds an MBA, an MEng and a love for disruptive technologies. His experience lies in the development of software solutions, including electronic payment systems, business development and strategic development. He is inherently internationally-minded, having moved from corporate to small ventures in Scandinavia, complemented with his MBA awarded in China, Mr. Castro is now based in Switzerland as chief information officer for Utrust.

Published at Thu, 02 Jan 2020 08:30:00 +0000

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Hong Kong in Talks with China to Stretch Cross-Border Testing of Digital Yuan

After the successful proceeding of the first phase of the testing of the Digital Yuan, Hong Kong is in talks with China to stretch its cross-border testing.

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After the successful proceeding of the first phase of the testing of the Digital Yuan, Hong Kong is in talks with China to stretch its cross-border testing. This has marked yet another step toward wider adoption of the currency.

Hong Kong to Stretch Testing of Digital Yuan to China

The Monetary Authority of Hong Kong has recently conducted tests with the Digital Currency Institute of the People’s Bank of China.

In addition to this, the Hong Kong Monetary Authority said in an e-mailed response to the questions asked that it involved a bank designated by the mainland authority, as well as the merchants and bank staff.

The e-mailed response said:

“We have tested the use of the related app, system connectivity, and certain use cases such as cross-boundary purchases.” 

Along with this, the statement said:

“We are discussing and collaborating with the PBOC on the next phase of technical testing, including the feasibility of broadening and deepening the use of e-CNY for cross-boundary payments.”

Also, it should be known that the People’s Bank of China is pretty ahead of other major central banks in the development of its own digital currency.

The bank is looking forward to replacing cash and maintaining control over a payments landscape that has become increasingly dominated by technology companies not regulated like banks.

Payment Infrastructure Underpinning e-CNY can Address Substantial Portion of Cost Base

As revealed in the report released on Wednesday by Oliver Wyman, the usage of the Digital Yuan in Hong Kong could lead to a much faster and cheaper cross-border payment and clearing process. 

Michael Ho, the Principal of Financial Services at Oliver Wyman and Co-Author of the report said:

“If the payment infrastructure underpinning e-CNY were to roll out for cross-border payments at scale, we believe it can address a substantial portion of this cost base.”

China could promote the overseas use of digital yuan starting with the Greater Bay Area, a massive urban cluster that includes Shenzhen, Macau, and Hong Kong.

READ  Diginex Introduces EQUOS.io In Singapore To Start Derivative Product Trading

#Cross-border transactions #Digital Yuan #Hong Kong

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Source: https://www.cryptoknowmics.com/news/hong-kong-in-talks-with-china-to-stretch-cross-border-testing-of-digital-yuan

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Identity Platform Acuant Partners with Blockchain Analysis Firm Chainalysis

It has been revealed that the identity platform for fraud prevention and Anti-Money Laundering compliance, Acuant has partnered with Chainalysis.

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In a recent announcement, it has been revealed that the identity platform for fraud prevention and Anti-Money Laundering compliance, Acuant has partnered with Chainalysis. The recent partnership between the AML compliance and the blockchain analysis company is meant to assist financial institutions with AML solutions.

Acuant Partners Chainalysis to Provide AML Solutions

The partnership between Chainalysis and Acuant will be helping in assisting the cryptocurrency businesses assess risk, safeguard them against illegal transactions, automate workflows, and protect their reputations with Anti-Money Laundering solutions.

In addition to this, it should be known that the customers of both partners, Acuant and Chainalysis, will now be able to leverage both the platforms via the interface provided by Acuant to manage transactions that are indicative of higher risk.

The customers will be provided with access to Chainalysis Know Your Transactions (KYT) as well as Chainalysis Reactor, their graphical investigative software

Talking further about the investigative software, it can be utilized to follow the flow of funds across the blockchain for investigations.

The amalgamation of the Chainalysis Know Your Transactions and Acuant integrates a data set of thousands of services with the solutions that help to review both the fiat and crypto transactions.

The Integration of Identity Platform and Blockchain Analysis Firm

Well, along with this, the integration will be helping in detecting any kind of suspicious activities, manage the investigations, and moreover, file the suspicious activity reports (SARs).

The real-time alerts on the highest-risk activity will be allowing the compliance teams to target the most urgent activity and following that, fulfill the regulatory obligations to report the transactions that are suspicious.

Jose Caldera, the Chief Product Officer at Acuant said:

“Our partnership with Chainalysis will further augment our support to the cryptocurrency industry. This partnership is bringing together and integrating the top Anti-Money Laundering solutions in the marketplace today. We look forward to working with Chainalysis to strengthen our platform and to continue to be a leading solutions provider in the crypto space.” 

READ  Bitcoin PARABOLIC!! | $9,500 Next Stop?? | Bitcoin Maximalism Vs. Altcoin Hype | BTC On Excel

#Acuant #Blockchain #Chainalysis

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://www.cryptoknowmics.com/news/identity-platform-acuant-partners-with-blockchain-analysis-firm-chainalysis

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BIC’s Video News Show: Bitcoin Cash

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In this episode of the BeInCrypto video news show, host Jessica Walker will look at bitcoin cash (BCH). The coin has returned to the top ten in market cap, due to an anticipated upgrade, its pairing with ethereum (ETH), as well as the increased use of CashFusion. We’ll also take a look at its recent price movements.

Bitcoin Cash is Back in the Top 10 Cryptos! Is it There to Stay?

Bitcoin cash back in top ten

Bitcoin cash has been gaining a lot in the past several weeks. It currently sits at the tenth place on CoinMarketCap’s top cryptocurrencies in terms of market capitalization. It is a regular on the list and it seems to be going up because of investors looking for the next “boom-coin.” By sharing a name with mainstay bitcoin (BTC), it’s basking in the glory of its more popular namesake. But what are some other reasons for BCH’s return to the top ten?

May 15th upgrade

Perhaps the most important thing on BCH holders calendar is the upgrade that will happen on May 15. Most of the changes are aimed at improving the experience of users and merchants when using BCH to make payments. This will hopefully provide another incentive for adoption.

Another upgrade that stands out to us is the removal of the unconfirmed chained transaction limit. This will allow users to do more than 50 chained unconfirmed transactions at a time. This was a highly requested feature for a long time. In particular, by gambling sites and other high volume, quick transaction apps that relied on BCH for payment. 

BCH and Ethereum

Another interesting development around BCH is its pairing with Ethereum. This will happen through the SmartBCH sidechain, which was announced last Thursday. 

In an interview with bitcoin.com, the Smart Bitcoin Cash team lead explained that developers and decentralized app makers can now experiment and develop with the sidechain, which is compatible with the Ethereum Virtual Machine. This seems to have already provoked some interest. 

The Coinflex exchange team has begun running tests with setting up a decentralized exchange and creating tokens. If successful, the sidechain could become a platform for expanding the user base of bitcoin cash and grow its ecosystem. 

CashFusion

CashFusion has also been mentioned quite a lot this week. For those of you who haven’t heard of it, CashFusion is a service that provides privacy for bitcoin cash. Described simply, it lets wallets help each other blend into the crowd and keep prying eyes away. 

Reports have indicated that since CashFusion was introduced in November 2019, there have been more than 67,000 fusions or almost $6 billion worth of BCH using today’s exchange rates. This could be another sign of the popularity of bitcoin cash, which has largely gone under the radar in recent months.

Technical analysis

A quick chart analysis shows us that we are close to a high from May 2018, which was around $1,850 dollars. Right now, we seem to be on track to reach and test that level. But a correction and retest of $1,228 on the downside are also possible, although that level did hold several days ago. 

Source:TradingView

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Nick is a data scientist who teaches economics and communication in Budapest, Hungary, where he received a BA in Political Science and Economics and an MSc in Business Analytics from CEU. He has been writing about cryptocurrency and blockchain technology since 2018, and is intrigued by its potential economic and political usage. He can best be described as an optimistic center-left skeptic.

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Source: https://beincrypto.com/bics-video-news-show-bitcoin-cash/

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Aave Testing Out Permissioned Pool for Institutional Investors

DeFi lending protocol, Aave protocol has built a permissioned pool for institutions to test out before getting involved within the DeFi ecosystem.

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DeFi lending protocol, Aave protocol, has built a permissioned pool for institutions to test out before getting involved within the DeFi ecosystem. The permissioned test pool is designed to be compliant with AML regulations with mandatory Know Your Customer (KYC) verification process from relevant partners. The pool would be coming to mainnet sooner rather than later.

Aave Permissioned Pool for Institutional Investors

Earlier on May 12, a Twitter user posted a tweet tagging Aave’s official Twitter account expressing concern that an anti-money laundering warning had appeared on Aave’s homepage.

Responding to this, the founder of AAVE, Stani Kulechov tweeted back saying that there had been a mistake and that “The text is actually incorrect and relates to another pool we’re testing out” explaining that Aave is still fully decentralized, and the text had appeared in the wrong place before later revealing that Aave is testing out a private pool for institutional investors.

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Another user replied asking whether the specified pool was for testing out compliance features. Kulechov then confirmed the private pool was built for institutions to practice “before aping into DeFi.”

Even though Aave was launched at the beginning of 2020, it has experienced significant growth in total deposits and daily deposits since the summer of 2020.

Aave’s recent launch on Polygon and the introduction of its liquidity program was followed by its total value locked rising from $5.4 billion on April 25 to roughly $11.4 billion on May 12.

Aave Deposits and Permissioned Pool for Institutional Investors

Aave’s head of institutional business development, Ajit Tripathi, confirmed that the protocol had indeed designed a permissioned pool.

However, the “private pool” description in Kulechov’s Tweet was not entirely accurate as the pool will be on public chains but will have permissioned access for institutions, describing that the purpose of the pool was educational.

READ  DASH Falling and Testing Below $191.22 – Technical Analysis

Aave has totaled over $45 billion in deposits, with 2021 seeing the protocol average $231 million in deposits per day. Over 46,000 unique Ethereum users have become lenders on Aave, with the average all-time deposit reaching $173,000. AAVE is currently trading at $566 at the time of writing.

#AAVE #DeFi #Permissioned Pool

Coinsmart. Beste Bitcoin-Börse in Europa
Source: https://www.cryptoknowmics.com/news/aave-testing-out-permissioned-pool-for-institutional-investors

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