Chargeback Prevention

Prevent Fraud Related to Chargebacks


A fraudulent chargeback is one of the most nightmarish experiences for an e-commerce retailer.  Chargebacks are a difficult part of e-commerce since they represent a breakdown in communication between customer and retailer.  Chargebacks could involve arbitration and escalation to third party companies.

But credit card chargeback fraud is the chargeback's evil twin. Chargeback fraud is also known as “friendly fraud,” as it involves an actual customer perpetuating a fraud, rather than an identity thief or other third party.
Follow the tips below to prevent chargeback fraud in order to save you and your business time and money related to chargeback fraud.  While the tips are easy to follow, they do require thought and preparation when engaging in e-commerce transactions.

These preventive efforts, however, when compared to the time spent investigating and hopefully winning chargebacks or reversing chargebacks, are well worth the investment to ensure your business doesn’t get caught in the chargeback fraud cycle.

Chargeback Fraud Preparation

An e-commerce transaction is accompanied by several pieces of information that determine whether a transaction may result in a fraudulent chargeback.  These methods will discourage fraudulent behavior, not only by tracking customer input, but also by showing the customer that you’re tracking his or her input.

  1. The first and easiest way to prevent chargeback fraud is to know your customers.  Business owners get to know their clientele and understand purchasing habits.  If a customer begins changing buying patterns or drastically changing the information provided during a transaction, it may be cause for concern.  It’s not a cause for concern in all cases, but it may warrant a check-in with the customer via email or phone call before completing the transaction.

  1. A card absent environment chargeback is a type of chargeback related to the physical credit card not being present when a transaction is completed.  Making sure you collect a card security code during an e-commerce transaction is a sure-fire way to prevent many fraudsters from claiming that a transaction was invalid.  By asking for the security code, you ensure that the customer is in possession of the credit card during the transaction.

  1. Check that box!  Forcing customers to check a box indicating their understanding of your terms and conditions of a sale makes it much harder for those customers to win chargebacks based on the terms of a transaction, even if they didn’t actually read the terms and conditions at all.

  1. Even if nothing major stands out as odd about the customer’s profile or activity, check the addresses on all orders.  Do the shipping and billing addresses match?  Ensuring order accuracy is the easiest line of defense to ensure that the customer receives the order properly, and so that the fraudsters have a difficult time claiming that their merchandise or goods were not received as promised.

  1. Signatures and personalized codes are also key after a transaction is completed.  If the customer signs for the merchandise, or if he or she clicks on a download link from a similar IP address to the one used for the transaction, it shows that the customer received the package and accepted it as provided.

What we’re attempting to do by taking these relatively easy steps is akin to installing a home security system.  The security system is functional, but the ideal situation is for the security system sign in the front yard to be enough deterrent to warn off any invaders.  Each of the above steps is designed to scare away fraudsters, but in case it doesn’t, each step also provides a paper trail to fuel any future chargeback investigations, should they arise.

For additional tips on how to reduce and prevent chargebacks, download your free copy of the eGuide, Chargeback Prevention: Tips for Low, Medium & High-Risk Businesses.

Chargeback Prevention Tips for Low, Medium & High Risk Businesses