Each transaction involves a certain amount of risk. Purchasers often risk dissatisfaction or disappointment upon receiving a product or service. And merchants always risk the possibility of a customer dispute or fraud. Learn the fine art of Chargeback Protection and How to Prevent Disputes.
This risk is not always dependent upon the type of business or medium of transaction. Online merchants are just as likely to endure customer dissatisfaction or malfeasance as those in a brick-and-mortar store. But one is more likely to encounter certain risks in given business environment than the other.
Local, face-to-face transactions involve personal contact between a merchant and customer. But online, merchants and customers are unlikely to ever meet in person. This heightens the risk of certain types of fraud.
A chargeback occurs when a customer disputes a purchase on his or her credit card statement. Chargebacks can be legitimate, illegitimate or the result of a mistake such as the failure to recognize a line item on one’s credit card statement.
Although chargebacks occur in both online and brick-and-mortar business transactions, they are particularly more common with online transactions and this is where chargeback protection becomes a must.
Chargebacks pose special risks to online merchants. Whereas brick and mortar merchant transactions are local and can be solved face-to-face, online chargebacks usually rely on an intermediary. In the online world, this go between is usually an online secured payment processing gateway and possibly some form of integrated chargeback management and chargeback protection tools that will help mitigate your potential loses.
Payment processors face risks, too. When a client’s chargeback ratios begin exceeding a reasonable threshold of total transactions, the results can affect the payment processor. Processing services offset this risk by passing on the cost to customers in the form of fines, fees and upfront or rolling reserves.
Chargeback fees and fines pose a real liability to online merchants. As such, they must plan for chargebacks and devise a strategy to deal with them before they impact profits.
Chargebacks occurs when a customer disputes a purchase on his or her credit card statement. This can happen for a variety of reasons. Customer satisfaction is gospel and you need to do everything you can to insure they are more than satisfied to run a successful business.
Customers sometimes base online purchases on a picture or description from a website. But when the purchase arrives and it is a disappointment, they dispute the purchase. Similarly, products can arrive broken or services fail to live up to customer expectations. All such circumstances can prompt the customer to initiate a valid and understandable chargeback.
Similarly, chargebacks can be the result of confusion. A customer may make a purchase and then forget having done so. In such cases, s/he will fail to recognize the line item when it appears on his or her credit card statement. Or perhaps a merchant’s descriptor is vague or unrecognizable, prompting a customer to dispute a charge for a perfectly legitimate transaction. Human error accounts for a certain number of chargebacks.
But a certain percentage of chargebacks are not good-faith disputes or the result of human error. These chargebacks are fraudulent in nature. Fraudulent chargebacks can deeply impact a merchant’s bottom line and imperil their business.
Types of Chargeback
Understanding the different types of chargeback and the reasons for their occurrence is the first step to controlling chargebacks.
Goods, Service & Problems
Customers will dispute transactions when goods fail to arrive or services do not live up to customer expectations. Maintaining good records of transactions and tracking shipments can help lessen or eliminate this kind of chargeback.
Credit Card Trail
Customers will sometimes deny, truthfully or not, that a given transaction occurred either online or via the phone. The key to managing this kind of chargeback is to obtain as much customer information as possible at the point-of-sale. Be sure to obtain the customer’s credit card number and the CVV2 of the credit card.
Invalid Credit Cards
Customers will occasionally attempt to make transactions on invalid or expired credit cards. Merchants should configure their systems to reject invalid or expired credit cards. Chargebacks will occur automatically if a credit card cannot be identified as invalid or expired.
The online world itself can sometimes generate problems unique to its environment. For example, a stray mouse-click can cause a customer to receive duplicate charges on their credit card statement, leading to a chargeback. Similarly, credit card numbers can be improperly entered online or mistaken when taken down over the phone. Wherever possible, avoid manual processing.
A certain percentage of chargebacks are due to actual fraud. Fraud accounts for billions of dollars in losses to legitimate businesses annually and the online world is no exception. Fraud is a complex topic unto itself. Banks and online payment processors recognize two different kinds of fraud.
Friendly fraud occurs when a customer fails to recognize a line-item on their credit card statement and initiates a dispute. This can be the result of an unclear merchant descriptor on the card itself, simple forgetfulness or due to a family member making a purchase without informing the card holder. Friendly fraud is the result of mistakes made in good faith.
Fraud from Chargebacks occurs when a cardholder maliciously disputes a purchase with the conscious intention of retaining goods and services for which she or he has not paid.
Although fraud is an ever-present threat, merchants can take positive steps to protect themselves against fraudulent transactions.
Protecting against Friendly Fraud
Friendly fraud occurs when a customer disputes a legitimate charge unknowingly. They may not recognize the charge when it appears on their credit card statement due to forgetfulness. Similarly a charge made by a family member or one identified with an unclear description may go unrecognized. Merchants can take steps to protect themselves against friendly fraud.
Take time to ensure your business has a clearly outlined set of purchase policies identified on your website. Be sure to issue paper or electronic receipts to customers containing this same information and contact info. Also, ensure the name of your business is clearly identified on credit card statements. Periodic follow-ups in the form of surveys and special offers sent to clients via e-mail can also keep the memory of the purchase vivid in the customer’s mind.
Protecting against chargeback fraud
Chargeback fraud occurs when a customer maliciously disputes a charge with the intent of keeping the product or service purchased. Protection against chargeback fraud requires additional steps to protect your business.
Additional steps for Chargeback Protection
You can help shield your business against chargeback fraud by doing the following.
Practice good credit card security
When conducting a credit card transaction either online or over the telephone, be sure to accurately record the card number and CVV code (that is the three-digit security code on the back of the card). Additionally, obtain as much information as possible about the customer, including name, address, e-mail and phone number. Never accept an expired credit card.
Communicate with the customer
Be aware of where your customer is calling from as that can be an indication of the likelihood of fraud. Orders from the Middle East, Asia and Africa are often considered high-risk and should be avoided and/or treated with caution. When shipping large or expensive orders, call first to verify contact information and communicate to the client exactly what s/he should expect. If you cannot contact the customer, the order may be fraudulent.
Set and enforce refund policies
Having a set refund policy can save you an enormous amount of time and frustration and can reduce the risk of fraud. Include a refund policy statement on your website and reference it in client communications. Fraudsters tend to try and avoid companies that are well-organized, transparent in its policies and have safeguards in place to help prevent fraud.
Just as you understand your business, you should also try and understand customer behavior to understand chargeback protection. The best approach for this is intensive and continuous study of your customer transactions. By doing so, you will learn the art of Chargeback Protection and How to Prevent Disputes.
Has there been a recent spike in chargebacks? Analyzing data gathered from transactions can help you understand why. Are the chargebacks clustered within a particular geographic area? Are the credit card numbers attached to multiple chargebacks sequential? (This could indicate a theft ring.) Or is something perhaps wrong with your product or service? Studying & reviewing customer surveys will help you to understand this piece as best as possible.
Similarly, maintaining records of the outcome of chargeback disputes is helpful. Each one, though painful, can prove a learning experience. Which disputes did your company win and why? Chargeback disputes settled in your favor typically indicate friendly fraud. Lost disputes typically indicate true fraud, a valid dispute or a problem with your dispute resolution process.
Maintaining good records, engaging in frequent, effective communication and studying customer transactions will enable you to trap, process and analyze customer data. Doing so is the single best step you can take to protect your business against chargeback fraud.
To reduce the number of chargeback disputes, take time to examine your operational model andd implement chargeback protection procedures on a daily basis. Is your staff communicating effectively with customers? Are they trapping the necessary information to follow up on disputes? Ensuring good communication and information retention practices can help reduce chargebacks.
Periodic reminders to customers can also reduce chargebacks. Sending reminder e-mails about pending billing, offering customer satisfaction surveys or doing follow-up calls are excellent ways to reduce chargeback, friendly fraud and chargeback fraud.
SecureGlobal pay is an Industry leader in both Retail and Online Credit Card Processing. With over 25 years experience in the Payments Space, they have the ability and knowledge to help you and your business come up with a plan to prevent customer disputes and protect you from potential loses. Call one of our experts today @ 800-419-1772 or a free consultation.