The universally abhorred thorn in every businesses’ side across every industry is undoubtedly the dreaded CHARGEBACK, and eCommerce businesses, without question, bear the brunt of the burden. While the introduction of EMV smart chips and added credit card security measures reduced in-store credit card fraud by 80%, card not present (CNP) fraud increased by 81%. When the going got tough, criminals didn’t simply throw in the towel, they just transferred their focus from in-store fraud, to online fraud.
The Covid-19 eCommerce boom added fuel to the fire. Many unsavory characters suddenly had additional hours available to wreak online havoc due to school closures and lockdowns. Additionally, staffing shortages, supply chain issues, and delivery delays, caused many legitimate customers to become impatient and disgruntled, and a reduction in customer satisfaction often results in an increase in chargebacks.
So what can eCommerce merchants do to protect themselves from this escalating trend? Created to protect cardholders, chargebacks seem rigged against merchants. For this reason it should be a top priority for every business to be educated on how to reduce legitimate chargebacks while dodging fraudulent ones.
Types of Chargebacks
Criminal fraud will result in a chargeback when fraudsters use a stolen credit card to make a purchase. The cardholder will notify the credit card issuer of the unauthorized charge to reverse it, and the responsibility to cover the cost will revert to the merchant.
Friendly fraud is committed by a legitimate customer either intentionally or mistakenly. Sometimes, dissatisfied customers will dispute a charge as opposed to initiating a return. Other times, a customer simply forgets about the purchase or doesn’t recognize the billing descriptor on their monthly statement and initiates a dispute.
Merchant Error is generally caused by a clerical error. A merchant may accidentally run a charge through more than once or input the wrong billing amount.
Best Practices for Preventing Chargebacks
Be User Friendly
Customers flock to eCommerce brands that have positive reviews, great customer service and easy to follow return policies. According to Finance Online, reviews influence 92% of purchases.
You can achieve elevated customer experiences by ensuring that your products are clearly and accurately described and portrayed. Detailed dimensions and clarity around what is and isn’t included in a purchase will minimize dissatisfaction upon arrival.
Clearly state your return policy on your site and include a copy in every order. Make sure your customers feel comfortable initiating a return and keep the process simple to avoid having them opt for disputing a charge, as an easier alternative.
Be accessible to your customers via phone, email, chat or social media. Respond quickly and with compassion. Your good attitude will save you money and heartache. This is especially important for businesses engaged in subscription billing. Be readily available to graciously cancel a customer’s subscription at any point, rather than risking a chargeback. Notifying customers before charging a recurring payment is also an effective way to avoid incurring a chargeback.
Make sure customers recognize your store when reviewing their financial statements. Choose an obvious billing descriptor and let your customers know on their packing slip or order confirmation email how your store will appear on their records.
Anticipate Buyer Dissatisfaction
If severe weather is headed toward a buyer’s area, anticipate shipping delays. Reach out to customers and give them a ‘heads up.’ A simple apology for the delay can go a long way. Engaging with your customers can preventatively reduce dissatisfaction that result in chargebacks.
Follow up with customers following a purchase. Look out for customer service interactions with disgruntled shoppers. It is cheaper to refund a transaction than to suffer a chargeback, the accompanying chargeback fee, and risk raising your threshold and credit card processing fees.
If a customer doesn’t recognize your store on their credit card statement and disputes the charge with their bank, it may be possible for you to send the necessary documentation to the financial institution to deflect the dispute before it becomes a chargeback.
Follow the Rules and Keep Records
To avoid chargebacks due to fraud or human error, implement good fraud prevention and employee procedures. Consider using the Address Verification System to verify billing addresses and require card security codes. Manually review high risk, or high value orders to ensure they are legitimate.
Train employees taking phone orders to check and double prices before charging a customer. Use a printout or refer to the payment gateway for exact information. It is better to ask a customer for an alternate form of payment in the event that their card is declined, than attempting to run it over again and risking a duplicate charge.
Always keep records and backup records of all transactions, tracking information and interactions with customers. Email threads and chats can shed light on disputed transactions and assist in invalidating chargeback claims.
Upgrade Your Fraud Prevention Solution
Instead of scrambling to become a fraud expert and training employees to become detectives or fraud analysts, consider upgrading your fraud prevention solution.
Using an advanced fraud prevention solution is perhaps the most effective way to preemptively reduce chargebacks. The following graph by Chargeback.com portrays the overwhelming percentage of chargebacks due to fraud.
In house fraud prevention and free fraud prevention tools provided by most eCommerce platforms are elementary at best and ill equipped to handle large volume, or high risk orders. They tend to rely heavily on rigid thresholds which cause many false positives, and they are unable to detect account takeover fraud, or stolen identity fraud.
A full service fraud prevention solution such as NoFraud, uses advanced technologies such as device recognition, geo-location, machine learning and proprietary systems, to analyze thousands of data points per transaction resulting in an accurate ‘Pass’ or ‘Fail’ decision per transaction. Artificial Intelligence (AI) coupled with an expert team of fraud analysts eliminate false positives through intuitive reasoning and cardholder verification processes.
In addition to preemptively reducing chargebacks, in the event a chargeback does occur, NoFraud offers a chargeback guarantee on all orders they pass. Additionally, a service to manage all your chargeback disputes is available to NoFraud customers. That means, your team is completely free of the tedious task of collecting evidence and communicating with financial institutions.
As prickly as chargebacks are, they are avoidable! Taking measures to improve business policies, customer relations and fraud prevention solutions can heal your eCommerce business of this pesky affliction. It’s time for you and your teams to get back to what you do best, serving your customers and growing your business. Learn how NoFraud can help you do just that.