Protecting Your Businesses from Chargeback Fraud: Best Practices

Chargeback fraud is a common happening in the world of eCommerce. Chargebacks happen when a purchase is reversed and the consumer gets their money back from the seller because of a dispute initiated with their credit card company. Originally, chargebacks were intended to boost confidence in debit and credit card security and also provide a level of protection to consumers. Businesses should be aware of how to prevent chargeback fraud. In the current environment, a customer can dispute a purchase on their bill for the below-mentioned reasons: 

  • They don’t recognize a certain charge on their card
  • The customer never received their purchase or they were billed incorrectly
  • Customers feel that the product or service they paid for isn’t as promised
  • Their credit/debit card information was stolen and fraudulent transactions were made
  • A merchant’s return policy isn’t clear, and the customer doesn’t know how to return a product.

How do Chargebacks Work?

A chargeback happens whenever a customer contacts their credit card company to dispute a purchase on their monthly bill. When they start a dispute on a particular purchase, customers have to provide a reason as to why they feel the charge is an error and provide proof of their position. To keep the cardholders happy, most of these disputes work in the favor of the customers. This is one of the unsung rules for chargeback.

In the end, customers end up getting their money back in terms of chargeback. Fraudsters all over the globe try to take advantage of this policy, which is known as chargeback fraud. Businesses should be aware of chargeback fraud protection rules and regulations.

Rise of Chargeback Fraud

Chargeback fraud is a huge concern for eCommerce businesses as it has been growing at an annual rate of 20%. The greatest reason for chargebacks is fraud, including the transactions that weren’t made by the cardholder. There has also been an increase in a new type of fraud, known as “friendly fraud,” where a card may be used by a family member without the knowledge of the cardholder and the consumer doesn’t recognize the purchase at the end of the month. Whenever the cardholder learns about this unrecognized charge on their card, they dispute with their card provider about the charge, without learning that the payment was genuine. Businesses should know how to prevent chargeback fraud of this kind or any other kind. 

Chargeback fraud is a growing concern for businesses and it can have huge impacts. A business can lose a significant amount of money, they also have to bear the fees associated with chargebacks. If a merchant is hit with tons of chargebacks they could permanently lose their access to process payments. That’s why businesses need to adopt chargeback fraud prevention practices.

Best Practices to Prevent Chargeback Fraud

eCommerce businesses can follow some of the chargeback fraud best practices to reduce the rate of flow. Some of the chargeback fraud best practices are:

1. Keep Up With Latest Chargeback Codes

Chargeback reason codes aren’t permanent. That’s because each card network has its series of chargeback reason codes, or different categories to indicate the reason for a customer dispute for chargeback or refund.

For proper chargeback fraud prevention, merchants need to stay up to date on all the new chargeback reason codes so they can authenticate if something suspicious is happening. If a consumer suggests that the charge was due to fraudulent activity, but a merchant has the evidence to prove otherwise, they can dispute the customer’s claim and prevent potential chargeback fraud. 

Keeping track of chargeback codes can help merchants understand the biggest reasons for customers requesting chargebacks. If there’s a particular reason for it, merchants can look for a solution to solve that problem.

2. Proper Documentation of All Card Transactions

Some chargeback fraud best practices include merchants to dispute customer claims for chargebacks with signatures and receipts. Maintaining proper and thorough records of customer transactions will help your business from chargeback fraud. 

Now that eCommerce transactions are growing widely, it makes sense for merchants to have physical documentation. In a growing digital economy, sometimes it’s not possible to keep paper-based records, in this case, merchants need to leverage record-keeping technologies. These solutions can help in keeping track of every card-based transaction, including date and time, IP Address, and other information.

3. Utilize Technologies

Customer authentication technologies such as 3D secure can provide an additional layer of security to the card acquisition process and prevent chargeback frauds for merchants. This authentication process transfers the liability to the card issuer, compared to chargebacks landing on the merchant for responsibility.

Additionally, whenever a business invests in a fraud prevention solution, it can help them in identifying chargeback fraud opportunities before they happen, by identifying high-risk transactions. Having an always-on fraud prevention technology can help in reducing the flow of chargeback frauds.

4. Well Trained Teams 

If your team has a great understanding of payment processor compliance rules, they’ll be able to detect and spot suspicious activities instantly. Training your team in transactions when a card is present and when a card isn’t present can help in uncovering fraud before it even happens, which is the best way to prevent chargeback fraud. Businesses should build secure payment processes that aim in strengthening defenses against fraudsters. Regularly training your team on changing compliance is a great way to detect and prevent fraud.

5. Respond to Customer Issues Quickly

85% of consumers initiating disputes admit that they do this because it’s convenient, making it imperative that merchants make it just as convenient for consumers to get their issues fixed as soon as possible. With “friendly fraud” rates expected to cross over $130B in damages from last year, merchants must follow preventive measures to eliminate fraud before it happens. The best way merchants can make this happen is by providing 24/7/365 customer support, allowing customers to contact the business and settle concerns as soon and as seamlessly as possible. 

Not all businesses may be able to provide this level of support. In these cases, merchants and their teams must solve customer problems as soon as possible. Businesses should also provide clear return rules and regulations on their website, along with answers to other FAQs.

Chargeback Fraud