Latest Hosting Posts
Every ecommerce provider will have come across that dreaded fact of online trading life: the chargeback. With online transactions commonly completed via credit cards, chargebacks are inevitable – and oh so costly. As much as credit card providers need to protect their customers against erroneous charges, merchants often pull at the short straw as many chargebacks are the result of fraud. Below, we’ll explain what causes chargebacks and what merchants can do to prevent them.
Why chargebacks occur
Chargebacks can be both fraudulent in nature – and entirely innocent, based on a misunderstanding. The trigger for chargebacks related to fraudulent transactions is straight-forward: a customer’s credit card data is stolen, and an order is placed by a criminal. This unauthorized transaction is picked up by the customer and queried, resulting in a refund of the amount that was spent. This refund is, of course, financed by deducting the amount from the merchant’s balance.
Customers can also choose to abuse the chargeback process. Though this is not clear-cut fraud, it is an abuse of a valid dispute process. For example, a customer may spend a large amount and then suffer from buyer’s remorse. The customer disputes the transaction in an attempt to recoup the money spent, even though they received the goods ordered. Or, a purchase was made by a family member authorized to use the card, but the cardholder does not want to pay for the transaction.
Merchants should also be aware that some chargebacks are the result of customers not understanding what a transaction on their statement presents. For example, if your business trades as Fancy Shoes Online but transactions are processed as ACME Trading International you shouldn’t be surprised that customers query transactions, resulting in chargebacks. Services that involve recurring billings can also cause confusion if customers didn’t realize that they entered into a subscription service.
Fraud prevention is key
Though chargeback requests that are the result of a misunderstanding can often be ironed out, chargebacks that are the result of fraud represent a dead loss to the merchant. Cumulatively, these chargebacks could be a substantial loss for an individual merchant. It is certainly a big problem for the industry, with Juniper predicting that $71 billion will be lost globally in the 5 years to 2022, due to CNP (card not present) fraud.. Goods, once shipped to a criminal’s location of choice, cannot be retrieved yet the merchant will be out of pocket – both in terms of cash and in terms of their reputation with their payment processor.
For this reason, fraud and chargeback protection that effectively indemnifies merchants against incorrectly approved transactions is incredibly important for any ecommerce merchant which wishes to protect its bottom line and its reputation. The mechanics of successful fraud prevention are complex, with successful fraud prevention strategies relying on a highly informed, and highly adaptable approach.
Most small to medium-sized merchants do not have the internal capacity to apply a comprehensive anti-fraud program and should consider enrolling a fraud protection vendor with a solid reputation. Vendors that specialize in fraud prevention and protection have the capability to pool knowledge gained across many industries and to apply sophisticated machine learning algorithms to stay ahead of the ever-changing fraud landscape.
In fact, the more capable fraud prevention vendors can deliver a chargeback guarantee to their customers. In essence, these vendors are so confident in the high accuracy of the fraud prevention on offer that they promise to fully refund merchants if a chargeback is triggered due to a fraudulent transaction that was let through.
Sometimes it’s worth fighting back
In the case of clear-cut fraud, a business will be held responsible for the order, and the cardholder will simply be refunded. Ecommerce merchants can’t do much to fight back a chargeback that is the result of this type of fraud. On the flipside, chargebacks which are a result of a misunderstanding or an abuse of the chargeback process can and should be contested. Even smaller amounts are worth contesting as approved chargebacks are damaging to a merchant’s reputation.
Contesting a chargeback requires the merchant to respond to a chargeback claim in a timely manner, typically within a week or 10 days. Merchants need to be armed with compelling evidence and follow the card issuer’s due process. Evidence can include proof of delivery, address matches plus clear evidence of customer communications. Logging more extensive data such as the IP address, site browsing history prior to making a purchase and previous purchase history are all helpful data points which can help a merchant contest a chargeback.
It can take between 6 weeks and 6 months for the dispute process to clear. This includes a review by the acquirer of any evidence that the merchant has provided. With compelling evidence, the acquirer will reject the claim lodged by the customer and will charge the customer for the full amount of the transaction.
Chargebacks should be avoided
Though there are avenues to contest some chargebacks, chargebacks are simply best avoided altogether. Merchants can go a long way in preventing misunderstandings by making sure customers understand what they are billed for. A reasonable returns process can also help prevent chargebacks associated with poorly judged orders. Finally, the difficult to contest chargebacks that are the result of fraud can be minimized by making use of cutting-edge fraud protection, including chargeback protection.