Chargebacks happens for a variety of reasons including fraudulent use of a credit card, dissatisfaction with service or merchandise, and duplicate charges.Nowadays with the increase in chargeback (or “friendly”) fraud, merchants are finding themselves at risk when they accept legitimate online payments. Clearly, stopping fraud before even it starts is the key to combatting its costly effects. But how do you do that – especially in cases of friendly fraud, in which the card numbers, addresses and names of purchasers are all good, but truly their intentions are not?
It’s always good being informed and aware of common fraud indicators and best practices should be top priority when it comes to protecting your business.Chargebacks are one of the most unglamorous sides of the payments business. They implement dread and frustration in most merchants on a monthly, weekly and even daily basis, but there are ways to reduce and sometimes even eliminate chargebacks.
There are several different types of chargebacks:
Criminal Fraud – When a stolen card is used to make a purchase. Also known as credit card fraud, this is where criminals gain access to credit card information and make unauthorized transactions. More than half of all chargebacks are blamed on credit card fraud, however less than 10% of chargebacks are actually due to criminal activity
Merchant Error – When the merchant makes a clerical error such as duplicate or incorrect billing amount.To remove potential chargeback triggers, merchants need a thorough, unbiased inspection of business policies and practices
Service Error – When a company has poor return policy procedures, misrepresentation of product or services not fully delivered to client’s satisfaction.
Friendly Fraud – When a customer has buyer’s remorse and changes their mind suddenly or does not recognize the charge on their billing statement due difference in currency.Savvy shoppers detect and exploit loopholes in the chargeback process to game the system and secure an no-hassle refund.
For a merchant, chargebacks are the dreaded headache, but you can help reduce chargebacks and alleviate concerns by following these five steps:
1.Implement fraud filters
There are two standard security and fraud filters in the market that merchants can use today.
- Address Verification System (AVS): The Address Verification System(AVS) is a system used to verify the address of a person claiming to own a credit card. The system checks the billing address of the credit card provided by the user with the address on file at the credit card company.
- Card Verification Code (CVC/CVV2) : The CVV Number(“Card Verification Value”) on your credit card or debit card is a 3 digit number on VISA, MasterCard and Discover branded credit and debit cards. If you have a American Express branded credit or debit card it is a 4 digit numeric code.
2. Tighten Website Security:
It’s always good to tighten web security because Direct Web access to the merchant site is probably the best attack point for a fraudster, since that merchant is alone and often doesn’t have the protection in place to stop abuse on the site.
3. Use shipment tracking numbers and compare shipping/billing addresses
For merchants who deliver physical goods, it is crucial that shipment tracking numbers are used. Always verify buyer’s billing address if it matches the associated credit card. Also use a shipper who can track delivery and signature confirmation to avoid fraud. Considering that 58 percent of merchants accept orders from outside the U.S., the potential for economic devastation is staggering. You can choose the “extreme” route and eliminate your international orders altogether (as 25 percent of merchants have done in the last year or so) or you can add extra security and scrutiny to those orders before they are processed.
4. Make the refund process easy
Have a flexible refund policy and make the process easy. Customers should be able to initiate a simple request for a refund and have it processed within a reasonable time frame. It is therefore crucial that merchants have a quick and reliable customer service process and have the customer service contacts properly disclosed.
5. Beware the Size of the Order
Of course you want your customers to load up their digital shopping carts, but keeping an eye on the size of those orders (and adding higher levels of security to expensive purchases) can save your company some bacon.By spending most of your fraud prevention efforts combatting higher currency orders, you’re apt to not only “catch” more fraudsters, but also save yourself more per transaction.