Do you know that for every $1 lost to chargebacks, stakeholders lose $4.23 on average? Little wonder eCommerce businesses dread chargebacks; it is not only costly, it is time-consuming. To make matters worse, chargeback frauds are on the rise and are the number one fraud attack for merchants. Merchants are, therefore, justified to want to fight chargeback fraud with all they have.
To save the time, money, and energy required to resolve a chargeback issue, it is best to seek ways to prevent it from happening. How do you achieve that? Read on to learn ways to detect and avoid chargeback fraud as well as how to reduce disputes and chargeback costs.
What is a chargeback
A chargeback is a reversal of funds from a credit or debit card provider to a cardholder following a reported disputed transaction or fraud. Chargebacks are different from refunds because refunds are initiated by the merchant while chargebacks are initiated by the buyer. Also, in chargebacks, the buyer keeps the items purchased.
How do chargebacks occur
A chargeback happens when a customer is dissatisfied with a transaction and feels they deserve to get their money back. It could be that the buyer didn’t get what they expected or their card was used without their permission. When the customer’s claim is verified, funds are removed from the merchant’s account and sent to the customer’s account. This process can last weeks or months.
What is chargeback recovery
A chargeback recovery is when a seller requests a chargeback made to their account be reversed. This happens when the merchant, upon further investigations, discovers the buyer’s claim to be incorrect or fraudulent.
Reasons buyers request chargebacks
There are a couple of reasons why chargebacks occur. Find them below.
When the merchant makes a mistake
A seller might mistakenly ship the wrong product or there might be a technical error from the merchant’s end. In addition, a discount might be missed. The buyer can request a chargeback.
When the payment is unauthorized
Sometimes, unauthorized users like children or relatives can make payments for a product knowingly or unknowingly. The customer can ask for a chargeback in this situation.
When there’s a card fraud
When a card is stolen and used by fraudsters to purchase an item online, the owner of the card can ask for a chargeback.
When there’s a first-party fraud
First-party fraud occurs when the owner of the card decides to defraud the merchant by making false claims.
Stakeholders in the chargeback process
To detect and prevent chargeback swindling, you must be aware of the parties involved in the process.
- The customer or buyer
- The seller or merchant
- The issuing bank: the buyer’s card provider
- The acquiring bank: the bank that processes the seller’s card payments
- The payment gateway provider: the owners of the software used for the transaction from the seller to the acquiring bank
- The credit card company: the company that supervises the chargeback process
What is chargeback fraud
A chargeback fraud is any fraudulent act connected to a chargeback request or process, whether false requests/claims, card fraud, or dishonest interference.
Two types of chargeback fraud
The two main types of chargeback double-dealing are the following:
Friendly fraud: this occurs when the card owner commits the fraud Criminal fraud: this happens when a third party commits the fraud
How to detect chargeback fraud
To detect chargeback double-dealing, here are steps you can take.
Understand anti-money laundry (AML) guidelines
Anti-money laundry (AML) guidelines are regulations laid down to reduce the flow of dirty money in the banking system. SEON offers a detailed breakdown of these guidelines as well as how they affect your business. To detect and fight online fraud in your business, you must be familiar with regulations like this that tackle sharp money practices.
Flag the use of VPNs or other proxy connections
The use of VPNs to purchase an item online is a red flag and should be considered suspicious. Fraudsters often hide their locations with a VPN when they want to commit fraud.
Be cautious about purchases from high-risk countries
Some countries are known for fraudulent activities, especially online fraud. When users from such countries attempt to buy from you, be alert and take preventive measures.
3 methods to reduce disputes and chargeback costs
Whether through fraud or not, chargebacks are inevitable if you’re a merchant. Here are ways you can reduce disputes and chargeback costs.
Tighten your security Make sure you choose payment providers who take security very seriously and work to help their customers maintain low chargebacks. Ensure you update your POS software regularly. Use payment gateways that offer extra-secure technologies.
Take extra care with shipping To reduce disputes and chargeback costs, ensure you put in place best shipping practices like using a reliable shipping company, providing tracking features, and setting realistic delivery times, among others. Having a backup internet to ensure there are no hitches in accessing the information on your site is also essential.
Establish a clear return and refund policy
When you make your return and refund policy clear to your customers, many will follow these routes instead of requesting chargebacks. Friendly fraud will be quite difficult if there are clear terms on refunds. Let your customers know the options they have if they’re satisfied with a purchase.
Take the right steps and reduce chargeback frauds in your business
Chargeback costs can weigh any business down if not well-managed. Thankfully, these costs can be reduced if the right decisions and steps are taken to detect and prevent chargeback swindling. The information given above lets you know what chargebacks are all about, how fraud comes in, how you can detect and prevent chargeback double-dealing, and how to reduce disputes and chargeback costs.