When a purchase is canceled, and a customer receives their money back due to a disagreement they raised with their credit card provider, then this is known as a chargeback. Chargeback fraud has been on the rise recently, rising by 20% annually.
Chargebacks were initially created to give consumers an extra degree of security and boost their confidence in the safety of debit and credit cards. Chargebacks can be started for a variety of valid and fraudulent reasons.
Chargeback fraud has a significant negative effect on a company's bottom line. Purchases made using stolen credit card information account for almost 30% of chargebacks. In the year 2020, a US store lost $3.36 on a $1 fraud, indicating that businesses with big transaction volumes could lose a lot of money if they can't stop this theft.
The fact that chargebacks have been rising by 20% annually is a worry for companies and calls for effective chargeback fraud management. According to Mercator Advisory Group, 33 million chargeback scams will be committed by the year 2022.
Chargeback fraud is a serious issue for businesses, and the consequences should not be ignored. Companies may lose money on the goods and services they sell and incur costs for chargebacks that fall on the merchant. Furthermore, a retailer may lose its capacity to process card transactions entirely if they receive too many chargebacks.
How to Prevent Chargeback Fraud in Your Business
Stay Current with New Chargeback Codes: Did you realize why the reason codes for chargebacks are flexible and temporary? Each card network will have a new set of chargeback reason codes in 2022 or categories that allow customers to specify the basis for their disagreement when requesting a refund or chargeback.
The ability of merchants to effectively defend themselves in the event of a chargeback depends on their knowledge of new chargeback reason codes. If, for example, a customer claims a charge was fraudulent, but the merchant provides proof to the contrary, they can contest the customer's claim and perhaps reverse the chargeback.
Additionally, staying current with chargeback reason codes can help you comprehend why customers request chargebacks if you can identify a recurring problem.
Keep Accurate Records of All Card-Based Transactions: Signatures and receipts can be some of the finest proof for contesting chargebacks. In the long term, keeping thorough records of transactions can be beneficial, particularly if you have tangible evidence like these. Nevertheless, it is only sometimes possible to have physical paperwork or signatures due to the rising number of e-commerce-based transactions.
In this situation, make sure you retain records of card-based transactions, including the date and time of the transaction and the IP address the transaction originated from, or use a technological solution that can do so.
Utilize Technology Created to Prevent Chargeback Frauds: Visa and Mastercard developed authentication technologies like 3D Secure to increase card acquisition security and shield merchants from chargeback risk. Instead of placing a chargeback obligation on the merchant, this authentication system transfers it to the card issuer.
Additionally, by identifying high-risk transactions and enabling the business to develop unique rules for transactions, it will and won't accept, whether out of concern over specific IP addresses or blocked countries, fraud protection technology can help businesses identify chargeback fraud opportunities before they occur. Having a partner who is always monitoring for fraud can significantly lower your overall risk of disputes resulting from fraud.
Make Certain Your Staff Is Well-Trained in the Instructions Set Forth By Your Payment Processor: When your team is familiar with the compliance protocol used by payment processors, they will be better equipped to identify suspicious conduct as it occurs.
Secure payment procedures protect businesses. A merchant's strongest line of defense is training their staff in transactions when a card is available and when a card is not there. This can prevent fraud before it gets started. To help your employees better recognize risk when they encounter it, regularly train them on compliance.
Keep Your Payment Descriptions and Merchant Name Consistent: A consumer's initial step may be to file a dispute if they don't recognize the charge on their card. When consumers don't recognize a name or remember making a transaction, it can make them anxious and put them in damage control mode in case their credit cards or identities are stolen.
Retailers can reduce this risk by ensuring that the company name that appears on a charge matches the company name that the customer remembers. This quick repair could ultimately spare your company from costly chargeback troubles.
React Quickly to Customer Service Issues: Businesses must make it as convenient for customers to resolve their complaints with them directly because, according to 81% of consumers who start disputes, they do it out of convenience. Merchants must take all reasonable precautions to stop fraud before they arise because "friendly fraud" rates are predicted to exceed $130B in damages from last year (Ecommerce Fraud Statistics).
One approach to achieve this is to offer 24/7/365 customer support, enabling customers to get in touch with your company directly to address issues with the quality of your products or services, delivery delays, or return policies they may be unsure about.
However, not all companies might be able to offer their clients this level of assistance. In these situations, it is crucial that businesses and their personnel promptly address any customer service questions or issues. Making return policies and responses to other commonly asked questions on the company website clear.
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