Buying products and services online is a popular way to save time and money. However, certain unscrupulous individuals take advantage of this. Chargeback fraud is one such example of this. It’s damaging to your company’s reputation and could result in chargebacks that the merchant didn’t issue.
The fraudsters may steal the customer’s identity or use a counterfeit credit card number by using their credit card information without permission to make fraudulent purchases or charges. Keep reading to learn more about what are chargebacks, how to detect and prevent them for your growing business.
What Is A Chargeback?
A chargeback is a process that occurs when a buyer asks their financial institution to reverse payment for a transaction for which they have been issued a receipt. It’s usually initiated by the cardholder (buyer) because they claim their bank account or credit card was used without their authorization or knowledge. The buyer can dispute the transaction using the chargeback process due to its guaranteed protection of consumer transactions within the U.S. under federal legislation.
Reasons Why Buyers Request Chargebacks
The buyer’s bank initiates the majority of chargebacks, and most of these complaints are related to the theft of funds or unauthorized purchases. In some cases, the chargeback is because the buyer believes they were misled on the details surrounding the purchase or service.
Merchant Error
One common cause of a chargeback dispute is when a merchant makes an error in their marketing processes, typically when they are offering an introductory price during a promotion or sale period and overstating the special discount that will be applied to a transaction.
Unauthorized Payments
Another common reason for a chargeback is when the buyer believes they were charged more than the amount they had agreed to pay, usually due to a system error by the merchant.
Clear Fraud
The third reason a buyer might dispute the transaction is that there’s evidence of fraudulent activity linked to their account. In many cases, this involves the use of counterfeit cards or stolen credit card information to make fraudulent charges through your merchant account.
Friendly Fraud
Friendly fraud is a chargeback initiated by the customer who didn’t subject to fraudulent activity during the transaction. These issues can be claimed when buyers get their purchases, consume them, but don’t want to pay. They just decide to tell that goods are not delivered and ask for chargebacks.
How To Prevent Chargeback Fraud
There are several steps you can take for chargeback fraud prevention, including:
Use Available Prevention Tools
Take care of ID theft prevention for customers. If you have enough information about your customers, be sure to confirm their identity before processing any transactions. Card network tools such as Address Verification Service (AVS), card security codes (CVV), 32D Secure 2.0 (3DS2), and Visa Account Updater (VAU) together can increase accuracy.
Improve Customer Service
Follow up with customers who fail to receive a product, refund the money, and give them a reason for it. Offer better customer service to your customers. Make them feel like you want their business or not. Fraudsters want your money; honest shoppers want what you have to offer. When the two conflicts, fraudsters usually win.
Better Order Communication
The customer should be informed immediately if something goes wrong with their order. From the checkout until delivery and even more – you should communicate with the buyer and resolve all the issues that can occur.
Eliminate Merchant Error
Try to minimize human errors because they can easily turn into chargeback cases. Sometimes it is difficult to describe the exact items you have shipped to your customers and their quality. So, if you do not want to lose a lot of money for your mistakes, check the goods before sending them out and make sure that everything is intact.
Provide Authentic Marketing
When you are selling online, you need to know how to make your store attractive to customers and how to attract them in the first place. You must provide authentic marketing and manage your online reputation carefully because a good reputation means fewer chargebacks in the future.
Manage Recurring Payments
While recurring payments benefit merchants and customers, they can sometimes be problematic. So to avoid chargebacks related to recurring payments, you should provide transparent and clear conditions to use them.
Combat Friendly Fraud
Fighting friendly fraud is a huge problem for merchants. To minimize such kinds of chargebacks, you can provide additional steps. For example, signed delivery confirmation may prevent customers from falsely claiming that purchased goods have never arrived.
Seek Professional Assistance
As a rule of thumb, most types of chargeback can be detected and prevented with the help of professional services. They have a huge amount of successful cases, tons of analytics, and proven tactics to fight against chargebacks. By using such services, you can focus on growing your business.
How To Detect Chargeback Fraud
Chargeback fraud is easy to identify if you’re aware of fraudsters’ tactics. Keep an eye out for these warning signs:
Data Enrichment
Data enrichment is a process where fraudsters use websites that provide detailed information about people, such as their credit score, address, and even phone numbers. They will then use this information to help them create fake identities.
Device Fingerprinting
Fraudsters will also use device fingerprinting to learn how to create fake identities. Device fingerprinting is a process that records every interaction you have with a website, including what plugins you have installed, what browser and operating system you’re using, and more.
Behavior Analysis
Fraudsters will also look at your customer’s browsing and shopping habits to learn how they operate. They’ll analyze your customers’ purchasing patterns, and if they see an inconsistency in their behavior, they may be flagged as a potential fraud risk.
The Bottom Line
Chargebacks are unavoidable, but you can prevent most fraudulent chargebacks and keep your business afloat by implementing the above prevention strategies. Now that you know how to prevent and detect chargebacks in the near future, why not turn your business into a cash-flow-positive powerhouse.
