International v. Domestic Chargebacks

Doing business internationally isn’t as simple as finding a shipping company with good rates. There are a lot of factors that can complicate things, such as ensuring you’re in compliance with laws like the GDPR, and handling dynamic currency conversion.

It takes extra work to process international transactions, and that extra work adds up to additional fees and expenses. Those may be acceptable costs if you’re trying to expand your business, but they can also make disputed international transactions even more costly than the average chargeback.

Exploring international markets makes a lot of sense for many merchants—globally, 65% of consumers are happy to shop outside of their home country for a good deal. Breaking into new markets always comes with challenges, and the difficulties that come with payment dispute scan be especially troublesome. The key to getting through it is to understand what you’re going to encounter and come up with a strategy to deal with it.

How are International and Domestic Chargebacks Different?

First, let’s be specific about our terminology. For the purposes of this discussion, a domestic chargeback is any transaction dispute where the merchant and the cardholder are located in the same country. An international chargeback would be one where the cardholder is located in a different country.

The location of the issuer and the acquirer can come into play as well. Some banks specialize in international services, others may have difficulty routing or converting payments correctly. Banks that don’t have robust processes for regular international transactions may struggle to support merchants who need their support in dispute cases. If you expect to have a significant international customer base, it’s important to pick the right acquirers and payment processors.

For the most part, chargebacks are governed by the same rules no matter where they come from.

Visa, Mastercard, and the other card networks make the rules, and the issuers abide by them. However, some chargeback reason codes are reserved for international or region-specific chargebacks, which can be helpful when you’re analyzing your chargeback data and trying to determine where your chargebacks are coming from.

Are International Chargebacks Worse than Domestic Chargebacks?

While international chargebacks may be more costly to your bottom line because of their higher processing fees, they aren’t inherently worse than domestic chargebacks in terms of your chargeback ratio and other concerns. In the past, some card networks assigned less weight to international chargebacks when calculating a merchant’s chargeback ratio, simply to offset the fact that international transactions are statistically more likely to be fraudulent (and therefore result in a chargeback). However, this is no longer the practice.

It does point toward what is, in fact, the biggest problem with international chargebacks—they tend to be more plentiful than the domestic variety, especially if you’re selling to “high risk” countries that are known to carry higher rates of fraud.

Most of the time these will be true fraud chargebacks, where stolen payment credentials were actually used in the transaction and the merchant has no legitimate way to fight the chargeback. With no way to beat these chargebacks through representment, merchants must have robust anti-fraud defenses in place to screen out these orders proactively.

How Can Merchants Prevent International Chargebacks?

One way to reduce international chargebacks is drastic, but effective: block orders from high risk countries. Merchants may experience different chargeback rates from various regions depending on the industry they’re in, but according to the fraud prevention firm Forter, the countries with the worst ecommerce fraud records are:

• Indonesia
• Venezuela
• South Africa
• Brazil
• Romania

Does that mean you shouldn’t sell to those countries at all? This is an individual decision for each merchant; some could get away with blacklisting these countries and never see an impact to their bottom line, but not every merchant will have that option.

If you do go the blacklisting route, there are various tools that can automate this process to easily screen out potentially fraudulent orders.

You can analyze IP addresses, device geolocation, or shipping addresses to flag these orders for rejection or manual review.

The red flags of fraud that merchants should already be looking for will be present in fraudulent international transactions as well. Be especially careful of special order requests or sudden delivery changes from new international customers. Remember that whenever something makes you suspicious about an order, you can always reach out to the customer directly to talk to them about it. They may be able to alleviate your concerns—or confirm them.

Conclusion

Cultivating a global customer base can be a wonderful thing for your growth as a brand, but if you spread yourself too thin too quick you might find yourself playing catch-up with some of the unexpected challenges that come with international business. Chargebacks are too expensive a problem to figure out as you go—the best way to deal with them is always to come prepared with a plan to beat them, ideally one that involves lots of preventive defenses.

Venturing into international markets is a good reason to spend the time to review your anti-fraud tools and upgrade or add to them as necessary, and to review your policies and procedures for flagging and reviewing potentially fraudulent orders. When you take proactive measures to protect yourself from fraud and put the right measures in place to identify and deal with it when it occurs, you can sell securely to every corner of the globe while safeguarding your revenue from fraudsters.

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