Chargeback Defense
Every merchant that accepts credit cards will experience chargebacks, but that doesn’t mean you have to treat them like just another inevitable cost of doing business. Chargebacks happen for a variety of reasons, and while some may be unavoidable, many can be either prevented ahead of time or contested after the fact.
By taking active steps to maintain strategic defenses against chargebacks, merchants can hold on to more of their revenue, maintain good relationships with acquirers and card networks, and provide an superlative shopping experience for their loyal customers. What can merchants do to defend themselves against chargebacks?
- What is Bust-Out Fraud?
- How Does Bust-Out Fraud Work?
- What Are Synthetic Identities?
- Who Are the Primary Victims of Bust-Out Fraud?
- How Can Bust-Out Fraud Be Detected?
- Conclusion
Directly or indirectly, chargebacks can do a lot of damage to retail business. The obvious drawback is the revenue loss, which is compounded by the fact that chargebacks come with expensive fees—the typical chargeback costs a merchant more than double the amount of the actual disputed transaction.
Whether they originate from credit card fraud, merchant error, shipping delays, or unsatisfactory customer service, chargebacks also tend to signify bad customer experiences.
Acquirers, payment processors, and card networks don’t like them, either. To protect the payment card ecosystem, card networks track your monthly ratio of chargebacks to transactions, and if you exceed a certain threshold (typically 1%) you can be penalized. In the worst case scenario, you can even have your merchant account terminated.
A vigorous, data-driven chargeback defense strategy can prevent fraud, make your customers happier, and bring your chargeback rate down to safe levels. Here’s what merchants need to know.
What is Chargeback Defense?
Chargeback defense refers to a strategic plan to prevent and fight chargebacks. Because chargebacks can happen for so many different reasons, chargeback defense requires a comprehensive strategy informed by ongoing analysis of the fraud and disputes you’re incurring.
By analyzing chargebacks and determining their root causes, you can take targeted actions to stop similar disputes from recurring in the future.
That may involve changing your internal procedures, improving your customer service, implementing new fraud protections, or fighting fraudulent chargebacks more aggressively.
Why is Chargeback Defense Important?
Without a plan for chargeback defense, you’re at the mercy of cybercriminals, friendly fraudsters, and your own mistakes and inefficiencies. Disputes can quickly pile up, eating into your revenue and putting your merchant account in jeopardy.
The card networks know that most chargebacks represent negative customer experiences that can shake consumer confidence in the credit card payment system as a whole. To encourage merchants to reduce chargeback activity as best they can, the card networks have established remediation programs for merchants with excessive chargeback rates.
Even at their lowest level, these programs burden merchants with additional fees and obligations. If you can’t lower your chargeback rate and you stay stuck in one of these programs for too long, the ultimate penalty is to lose your merchant account and end up on an industry blacklist for up to five years.
Once you’ve had your merchant account terminated, you might only be able to continue to accept credit cards if you enter into a contract with a “high-risk” payment processor. These companies charge higher rates than regular payment processors, and don’t always provide the same level of service.
How Can Merchants Prevent True Fraud Chargebacks?
Every chargeback type requires a different strategic approach. True fraud chargebacks are challenging because there’s nothing you can do about them once they’ve been filed. Your only option is to proactively stop them from happening by identifying and blocking fraudulent transactions.
Credit card fraud is becoming increasingly technologically sophisticated, and the best defense is equally state-of-the-art anti-fraud technology. Anti-fraud software that relies on machine learning and artificial intelligence to optimize their fraud detection algorithms are among the most effective tools you can find.
Anti-fraud tools like 3-D Secure, which require customers to use multi-factor authentication methods, can also be highly effective, even if they do cause a bit of extra checkout friction.
How Can Merchant Avoid Merchant Error Chargebacks?
Merchant error chargebacks can be related to checkout software, customer service, shipping and delivery, product descriptions, product quality, terms of sale, return policies, and other issues. The good news is that the merchant has the ability to change and improve these things.
When you receive a merchant error chargeback, the thing to do is identify the cause and make changes to whatever policies or procedures will prevent similar chargebacks from happening again. Many chargebacks can be avoided simply by reviewing your business operations and making sure you’re providing adequate staff training.
How Can Merchants Fight Friendly Fraud and Other Invalid Chargebacks?
Friendly fraud chargebacks, also known as first-party misuse, refer to chargebacks that are filed for fraudulent or erroneous reasons. These chargebacks can be hard to anticipate, but you can fight them and your recover your revenue through the chargeback representment process.
Sometimes, invalid chargebacks happen because of miscommunications with customer service, vague merchant descriptors, and other honest mistakes. You can still represent these chargebacks, but you should always try to identify the causes and fix them.
Many chargebacks can be avoided simply by adding detail to your merchant descriptor and making sure that you’re providing excellent customer service around the clock.
Chargeback alert and deflection services can also help you avoid chargebacks that result from customer service issues or misunderstandings.
When it comes to intentional friendly fraud, merchants have to fight back. If you don’t, you’re likely to be retargeted and victimized by the same fraudsters and their associates over and over again.
To engage in successful chargeback representment, you need to look up the reason code, find out what sort of evidence is needed to get the chargeback reversed, and submit it to the issuing bank along with the represented charge. By keeping meticulous transaction records and investigating every chargeback as soon as your receive it, you should be able to get the majority of invalid chargebacks reversed.
Conclusion
With so many different types of chargebacks to watch out for, mounting an effective defense can seem overwhelming at first. However, it is very important to take concrete action to protect your revenue and lower your chargeback rate.
Data analytics is a key element to a successful chargeback defense strategy, and it can be helpful to get outside help from experts when you’re trying to get a handle on a growing chargeback problem. With the right experts providing guidance, you should be able to trace fraud and disputes down to the root causes and decide on an optimal course of corrective action.
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