9 Simple Strategies to Manage False & Fraudulent Chargebacks

Written by: Nate Foss

As much of a pain as they can be, chargebacks—a kind of forced payment reversal carried out at the bank level—are an indispensable consumer protection mechanism.

Fraud is a serious concern, especially in the eCommerce space. We need to have some means of helping cardholders recover their funds when they fall victim to abuse. The real problem with chargebacks as we now know them is that they, too, are prone to abuse.

The State of eCommerce Chargebacks

We can use the term “chargeback fraud” to describe multiple distinct consumer behaviors. A buyer could file a chargeback for any reason, from misunderstanding merchant policies or experiencing buyer’s remorse (friendly fraud) to deliberately defrauding the merchant (cyber shoplifting). In any case, the end result is the same: you lose revenue and merchandise, and endure additional fees, higher overhead, and threats to your long-term business viability.

Of course, you do have some recourse against fraudulent chargebacks. The representment process (the process through which merchants may dispute a chargeback) enables merchants to try to overturn a chargeback filed without proper justification. Even here, though, you face challenges that complicate the process:

  • Determining the Chargeback Source: Chargeback fraud operates by passing for a legitimate dispute thus the reason codes attached to a dispute don’t accurately reflect the truth.
  • Outdated Policies: Chargebacks were developed for a pre-internet age. The policies and procedures governing the chargeback process are not responsive to the demands of a digital marketplace.
  • Lack of Due Diligence: Issuing banks have an incentive to keep cardholders happy. Thus, they have an incentive to side with the cardholder in a dispute against a merchant.
  • Shortage of Resources: Chargeback representment is a complex and time-consuming process demanding specialized knowledge and data. Most merchants simply don’t have the time, staff, or funds available to do it effectively.

Top 9 Chargeback-Prevention Best Practices

Representment is an option, but it’s never a guarantee. Instead, the best option is to prevent chargebacks wherever possible. These nine tips can help significantly reduce your risk:

#1. Fraud Scoring is Your Friend

Fraud scoring evaluates transactions based on numerous factors, then reduces them down to a relative indicator of the level of risk each purchase represents. It’s not an airtight solution, but it’s a reliable indicator, allowing you to decline transactions that are likely cases of fraud.

#2. Use Address Verification Service

AVS compares the billing information provided by a customer against the information on-file with the issuing bank. If there’s a mismatch, that indicates the buyer is not a legitimate user.

#3. Participate in 3-D Secure

You may be hesitant about 3-D Secure, as it does add friction to the checkout process. The latest versions of this technology (3-D Secure 2.0) improve on many of the shortcomings cited with the original. As it’s an opt-in service, there’s minimal risk of turning away buyers.

#4. Consistent Customer Service

You should provide live customer service across multiple channels, including phone, email, and social media (if your customers frequent these channels) as many hours a day as possible (24 hours is preferred). Also, respond quickly to all customer inquiries. This will instill confidence and make customers less likely to turn straight to a chargeback.

#5. Communicate Delays & Other Issues

Whether it’s due to a natural disaster, or simply a temporary hiccup in the fulfillment process, be sure to let customers know whenever you experience delays that could impact operations. Offer regular updates to keep customers informed about the situation.

#6. Use Delivery Confirmation

Delivery confirmation is a great asset for two reasons. First, it provides transparency for your customers, offering more reassurance that their goods are on the way. Second, it could be a compelling piece of evidence in the event a customer does decide to file a dispute.

#7. Use Blacklists

If you’ve been burned once before by a user committing friendly fraud, establishing a blacklist can help ensure it doesn’t happen again. You can ban users who abuse chargebacks and prevent them from doing business with you in the future.

#8. Review Your Billing Descriptor

If a customer can’t recognize your billing descriptor on her statement, she has no way to tell you apart from a fraudster. Ensure your billing descriptor includes your name, URL, and phone number; in the eCommerce environment, including a physical address can actually create more confusion.

#9. Review Your Transactions

Conduct periodic reviews of your transactions. Examine any purchases that devolved into disputes, and evaluate what you can do to prevent the issues responsible from happening again in the future.

Don’t Hesitate to Seek Help

Adopting the practices and strategies listed above can significantly reduce your chargeback exposure. But as mentioned, chargeback management is complex, time-consuming, and requires a lot of specialized expertise.

We believe seeking help from a third-party chargeback professional is, ultimately, the best approach. A dedicated solution provider can optimize your tools and strategies, employing data and insights to which the average merchant doesn’t have access. By turning to the professionals, you can both maximize your ROI and free up resources and staff to deploy in other areas of the business.

It’s a pretty simple calculation: optimize what you can do well in-house, then outsource the rest.

 

With the integration of Chargebacks911, BlueSnap customers gained the ability to access advanced mitigation services—as well as industry-leading chargeback prevention and management tools—through BlueSnap’s exclusive All-in-One Payment Platform. Learn more about it here.

Learn More About Chargebacks911Nate Foss is the VP of Partner Relations at Chargebacks911, where he is responsible for developing and evolving the organization’s channel strategy, goals and agenda. Nate has more than a decade of experience in business development, digital marketing, and chargeback management and mitigation.