By Dennis Adsit
The damage to a company’s reputation from agents stealing credit card information is a serious threat. Further, companies are constantly trying to combat a low – but steady – percentage of consumers’ attempts to not pay for goods they have received. Despite the huge costs (both real and potential), the current strategies for fraud reduction do not leave contact center leaders sleeping better at night. Consumer fraud still goes on every day, and agents can be stealing credit card information without their supervisors even knowing it.
Six Sigma companies know that when you have outcomes with serious consequences, you have to begin thinking about error-proofing strategies, approaches that don’t allow the error to occur in the first place. This article addresses types of fraud and associated costs, root causes, and some possible solutions.
Types of Call Center Fraud: There are two sources of fraud that plague contact centers: agent fraud and consumer fraud. The primary and most serious manifestation of agent fraud is credit card theft. Agents write down the credit card information on a piece of paper or in a computer notepad. They then use that information to try to purchase goods for themselves, or they post the information on websites for a fee.
The second source of call center fraud is consumer fraud. The primary manifestation of consumer fraud is chargebacks, where consumers have purchased and received an item but call their credit card company to report it as an errant charge.
Costs of Fraud: The costs associated with both types of fraud are huge. In the case of agent fraud, you could argue that there are no costs to the merchant from identity theft. That is true, provided the theft is not traced back to the merchant or outsourcer. If it is, the liability and the damage to the company’s reputation can be substantial.
Reputation damage can even go beyond damage to a merchant or outsourcer; it can apply to an industry and a country as well. In places like India and the Philippines, BPO outsourcing employs hundreds of thousands of citizens. Countries like the Philippines are moving to pass tough laws to deter citizens from committing a crime like this and hurting the industry and the jobs in that country associated with it.
Calculating the costs of consumer fraud is not easy; in 2004, it was estimated to cost ecommerce merchants $2.6 billion. Certainly not all of it was due to chargeback fraud or from call center transactions. Regardless, the number is large. Plus, there is significant cost associated with the rework process. Here are the steps in the chargeback resolution process:
- The cardholder files complaint with card-issuing bank.
- The bank researches the transaction.
- The bank debits merchant via merchant provider and credits cardholder.
- The merchant account provider sends merchant documentation.
- The merchant can then refute the chargeback by providing evidence. This includes screenshots of the customer’s account (for service usage), copies of receipts, shipping receipts, and relevant communications. In the case of phone recordings, this is good evidence, but it can be hard to find and access in a format that can be sent externally. Additionally, not all recording systems allow for searching by credit card or order number.
- Further evidence may be required, or a decision is made. This can literally takes months to resolve. The cost is too great for smaller items.
- If a chargeback challenge is successful, the cardholder is debited again.
- If the chargeback challenge ultimately fails, the merchant is not only out the goods, out the revenue, out the cost of fighting the chargeback but must still pay the swipe fee. If the chargebacks are too numerous, the credit card fees may increase or the merchant could lose their merchant account completely.
Further complicating the situation, in many cases the customer has six months to dispute a transaction. If you offer subscription services, the situation is even worse. Let’s say you provide access to a subscription service, and your longest subscription plan is two years. Customers can dispute the transactions up to two-and-a-half years after they originally made a payment. Although this is unfair, most companies just regard it as one of the costs of phone sales.
Root Causes of Fraud: The ultimate root cause involves agents’ and consumers’ multifaceted motivations to steal; delving into this is unnecessary and unlikely to lead to scalable solutions. The real root cause in the case of agent fraud is the agent seeing and hearing customers’ credit card information. If agents could take the order without ever seeing or hearing the credit card information, there would be nothing to steal.
In the case of consumer fraud, the root cause and what opens the door to chargeback fraud is that the fact that the “credit card is not present.” If a consumer goes into a store and buy goods with a credit card, there are no fraudulent chargebacks. The customer was there; they swiped their credit card, and the cashier never saw the number. They signed for the goods authorizing the purchase. They walked out with the goods. Chargebacks are highly unlikely under this scenario.
In call centers, the customers are not swiping their cards. They are providing their numbers, and the agents are entering them into the system; this allows the consumer to claim they never ordered the goods or services.
Error-Proofing Strategies: Error proofing these situations must be similar to the way it works in a physical store. The customer enters their number without the agent seeing it, and they confirm the purchase with an audible yes or no to authorize the purchase.
The two root causes can be solved with the same simple solution involving DTMF (touch-tone) recognition. An app is installed into the CRM (customer relationship management) system. If there is no credit card on record, when the customer places their order, the agent asks the customer to enter their credit card number and security code using their phone. The app reads the tones and enters the number into the system. The app checks the number to make sure it is a valid credit card number. If there is a problem, the agent can ask the customer to reenter the number. During this process, the agent cannot hear the tones being entered and the number is masked on the agent’s screen.
This solves both kinds of agent fraud. The agents never see or hear the numbers, so there is nothing to steal or misappropriate. It also greatly improves the ability to fight fraudulent chargebacks. Because consumers have to enter their own number, it is just like “swiping” the card.
Before the order is put through, the agent clicks a button to play an audio message summarizing the details of the charge, which the customer can hear. This audio message ends by asking the customer to confirm their agreement by stating their full name. This transaction, referred to as a “verbal signature,” is recorded and then emailed to the customer, either as a separate email or as a part of the standard emailed order confirmation.
Consumers can still submit fraudulent chargebacks. However, this process is a deterrent to customers submitting them in the first place, and the recording provides significant evidence that can overturn fraudulent chargebacks.
Results: The results to date have exceeded expectations. Though it is hard to track improvements from events that you did not know about or that rarely happen, the inability of the frontline agents to see consumer credit card information has everyone breathing a lot easier. Offshore centers using this technology have reported a reduction in customer escalations and requests to be transferred to someone in the United States.
Several companies implementing this solution have reported that every fraudulent chargeback they have received has been overturned. It has also made it easier to research and respond to the chargebacks, as all the information is digitized and easy to look up and submit as evidence.
Conclusion: Call centers have a choice: Assign resources to strive for incremental improvement in agent policing, data management, and the consumer chargeback resolution processes and continue to worry that something might slip through the cracks, or bring an end to fraud with a simple app that eliminate the causes of fraud at the source. It’s your call.
Dennis Adsit, PhD is the VP of Continuous Improvement Consulting at KomBea Corporation. He may be reached at dennis.adsit@kombea.com.
[From Connection Magazine – April 2011]