The Importance Of Protecting Against Chargebacks

E-commerce is growing at an incredible pace. Due to Covid-19 pandemic there was an urgency for companies to adapt their business strategies and undergo digital transformation. Even though it might’ve pushed retailers and customers to embrace the ecommerce before everyone was ready, once it happened everyone realized the benefits that come with it and accepted it as a more convenient alternative to physical shopping. Not only businesses can reach a wider audience and introduce their products or services to a greater number of potential new customers, but also customers can find anything they set their mind on and they can do with just a few clicks or taps. 

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According to the research there was an increase of 57% in online spending among consumers between 18 and 34 and 41% among consumers over the age of 55 which shows how all the generations have successfully adapted to this new reality. 

But alongside these benefits there are some downsides in the form of chargeback fraud. Luckily, there is some good news – by implementing proper security protocols you can mitigate the risk of chargeback fraud happening to your business. 

What is chargeback fraud? 

Chargeback fraud is one of the most common types of e-commerce fraud and it covers all occasions in which a customer successfully disputes a transaction with their card provider resulting in the payment being debited back from the merchant. 

Chargeback can happen due to various reasons like:

  • Customer misunderstood merchants policy
  • They didn’t receive a product or service
  • Customer didn’t recognize the transaction on their credit card statement
  • Product or service didn’t look as the customer expected or like it was described
  • Customers card was stolen and used for fraudulent purposes
  • Customers card was used without their consent 
  • Duplicate transaction

No matter what the reasoning behind the chargeback is, the end result is the same for the merchant. They end up with the loss of merchandise and revenue from that sale. But the impact of chargeback fraud is even bigger than that. The ecommerce businesses hit with chargebacks will have  to pay fees and administrative costs associated with the process and if they reach a certain threshold they will also be charged a fine. And like that isn’t enough, if you have too many chargebacks your bank can terminate your merchant account and label you as high risk.  

How to protect your business against chargebacks?

If you want to avoid chargeback fraud, it is high time for you to implement methods that can make it easier to recognize them and protect your business. 

Be descriptive and clear. You can avoid customers being unsatisfied by the order, just by simply describing the item as precisely as possible. This also applies to your return policy. Make it as simple as possible as customers need to understand what they are agreeing to and what to expect and you will successfully avoid chargeback. 

Create a clear and recognizable merchant descriptor. A lot of businesses don’t really pay attention to this step, but it can make a huge difference in your business as a large number of customers submit a chargeback due to not recognizing the transaction on their bank statement. Having a clear merchant descriptor will help you eliminate this. 

Demand the CVV number for every transaction. This can reduce the occurrence of card-not-present fraud because this usually means customers actually have the credit card physically present.

Implement fraud prevention tools. Data enrichment, device fingerprinting or behaviour analysis, help you to gather more information about customers and use it to discover any patterns and recognize any red flags which can stop chargeback fraud before it even happens. 

Always include proof of delivery. By getting tracking information from shipping carriers you will be able to prove the item was delivered to its destination and dispute the chargeback claim of “ïtems  not being received”.

Be accessible. Make sure your contact details are easy to find. They should be clearly shown on your website or your emails and present on any documentation customers receive like receipts or packing slips. It helps you respond to any problems as soon as they happen and it can be the only difference between you providing a simple refund or a customer demanding a chargeback. 

Unfortunately, chargebacks will never completely go away, but by following these steps you can significantly reduce the impact they can have on your business.