Ask the expert: How can online dating service providers defend against fraud?

The world of online dating has expanded dramatically over the past 10 years, in terms of service offerings and use. Meeting online is now the most popular way for couples in the United States to meet¹, and the U.S. industry alone is estimated to be worth close to $4 billion².

It’s not just the U.S. seeing this growth: Around half of all singles in Denmark, Sweden and China have used online dating apps in the last month³. In South America, online dating revenue is projected to reach $146 million by the end of 2020, with an annual growth rate of more than 10% out to 2024⁴. As of February 2020, almost half of Mexican internet users surveyed stated that they used a popular mobile app to find dates⁵, while in Southeast Asia, spending on online dating in some countries has surged by up to 260% over the last three years⁶.

Across the globe, more than 31% of single internet users are also online daters⁷, with users in the APAC region showing the highest rate of adoption, at 42%⁷. Worldwide, the dating apps market is expected to surpass $8.4 billion by 2024⁸.

But with this growth across geographies and demographics comes new challenges for the businesses behind these services. Like any organization dealing with customers’ personal and payment data, online dating service providers face becoming victims of fraud.

What is the fraud risk for online dating service providers?

Online dating is considered a high-risk vertical by card schemes because chargebacks – the forced reversal of card transactions (also known as a dispute) – have been an issue in the market. The reasons for this are varied and often emotionally charged.

For example, a user may not find a match, or may have a negative experience through the service and cancel subscription payments out of frustration. Other users may find that the application simply does not work in their geography (because of uptake or technical restrictions, for example).

In these cases, it’s easy to imagine that charging the business back for payments made might feel fair to the user. Perhaps more concerning is that over 80% of customers admit to filing chargebacks simply out of convenience⁹.

How serious are chargebacks?

A key issue facing online dating service providers today is that customers might not understand the damage caused by chargebacks.

Any chargeback can cost businesses money. Not only could they lose the amount disputed by the customer, but they might also incur internal costs and processing fees. It is estimated that businesses could lose $130 billion through card-not-present fraud between 2018 and 2023¹⁰.

A high volume of chargebacks also puts your business at risk of being effectively blocked by card schemes. Failure to respond to, dispute or otherwise manage chargebacks may also impact the business’s access to payments systems.

Are there any other risks?

Online dating services will typically have their usage restricted based on legal age. Your service’s terms and conditions should clearly outline these restrictions and detail how they are compliant with your territory’s laws and regulations.

However, as is the case with cardholder-not-present fraud, lack of face-to-face contact with users puts online dating service providers at risk. Be sure to put strict age restrictions front and center when users sign up, and consider implementing safeguards such as card verification.

How can online dating services prevent costly chargebacks?

Prevention, it could be argued, is more important than cure when it comes to chargebacks. Although an online business is unlikely to eliminate chargebacks for good, there are a number of things a business can do to minimize them.

While online service providers may aim to deliver a frictionless user experience (keeping the barriers to entry low), they must also ensure that customers read, understand and agree to terms of use.

To minimize chargebacks, it is important to provide customers clear instructions about how they should pay, claim a refund and/or cancel their subscription. Making it easy for customers to ”get their money back” through your own processes could prevent your business falling foul of chargebacks.

Be sure, as well, to keep detailed transaction histories in case you are required to dispute a chargeback or prove to the card scheme you have endeavored to meet their requirements.

Is there a solution that could help prevent fraud?

There are, in fact, two Worldpay solutions that could assist online dating service providers in minimizing chargebacks and fraud.

The first, FraudSight, is a multilayered fraud solution that takes advantage of powerful data insight and fraud expertise to predict if a transaction is potentially fraudulent. Machine learning within FraudSight uses vast amounts of anonymized transaction data to assign transactions a fraud risk score, adding a layer of protection for any online business.

Worldpay can also provide highly tailored, rules-based approach to optimizing 3D Secure 2.0, the authentication protocol for online card payments. 3DS Flex from Worldpay could reduce friction in transactions by offering shopper-friendly authentication options. Improvements in authentication rates can lower fraud risk and protect revenue. 3DS Flex Premium gives businesses a detailed picture of how customers are interacting with authentication and uses this data for later chargeback defense.

But your options are not limited to these solutions. Speak to Worldpay today to learn more about your online dating service’s fraud risk and how we can help minimize it.

Sources

1. Shashkevich, A. 2019, ‘Meeting online has become the most popular way U.S. couples connect, Stanford sociologist finds’, Stanford University News [https://news.stanford.edu/2019/08/21/online-dating-popular-way-u-s-couples-meet/]
2. IBIS World, 2020, ‘Dating Services Industry in the US - Market Research Report’ [https://www.ibisworld.com/united-states/market-research-reports/dating-services-industry/]
3. Winther Paisley, E., Global Web Index, 2018, ‘What to Know about the Online Dating Landscape in 2018’ [https://blog.globalwebindex.com/trends/online-dating/]
4. Statista Digital Market Outlook - Segment Report, eservices report 2020 - dating services [https://www.statista.com/outlook/372/103/online-dating/south-america]
5. Statista: Most popular dating apps based on share of users in Mexico, February 2020 [https://www.statista.com/statistics/719832/dating-app-market-share-mexico]
6. Mobile data and analytics company, App Annie, via Dylan Loh, Nikkei staff writer March 2020 [https://asia.nikkei.com/Business/Business-trends/App-makers-cash-in-as-Southeast-Asia-falls-for-mobile-dating]
7. Dolan, E., Global Web Index, 2020, ‘Online dating: how markets and demographics differ’ [https://blog.globalwebindex.com/chart-of-the-week/differences-among-online-daters/]
8. ReportLinker: Global Dating Apps Market, By Age, By Gender, By Subscription, By Region, Competition, Forecast & Opportunities, 2024 [https://www.reportlinker.com/p05829173/Global-Dating-Apps-Market-By-Age-By-Gender-By-Subscription-By-Region-Competition-Forecast-Opportunities.html]
9. Chargebacks911, 2019, ‘Chargeback Stats’ [https://chargebacks911.com/chargeback-stats/]
10. Juniper Research, 2019, ‘Retailers to Lose $130bn Globally in Card-not-Present Fraud Over the Next 5 Years’ [https://www.juniperresearch.com/press/press-releases/retailers-to-lose-130-bn-globally-in-card-fraud]