Let us understand the meaning of Chargeback Fraud and Tips for saving your business from it.
When a customer files an unjustified chargeback denying a genuine purchase made by him, then it is known as a Friendly Fraud.
The customers do not go to the merchant for the refund and directly file a chargeback when they forget any entry on their bank statement or repent of a certain purchase or payment.
This way of getting a refund may be unintentional or it may also be an intended fraud. All in all, when a customer misuse the chargeback process it is a part of the fraud.
The merchant suffers a loss when fraud is committed by the customer. He purchases a product or service and pays for the item but after the delivery of his purchase, he files the chargeback. This way he would get the product/service and the refund.
It is the ratio of the chargeback-to-transaction. Dividing the number of chargebacks by the total number of transactions gives the chargeback ratio.
When this ratio drops then it proves that the efforts made to prevent the chargebacks are being successful, the management of the disputes is actively managed and the risk is kept in line.
Overall Reasons for Chargeback:
Following are the general situations when the customer tends to move towards their bank for filing a chargeback:
- Purchase from a stolen credit card
- Product not delivered
- Wrong product shipped
- Product not as per expectation
- The product does not match the description
- Clerical errors like billed twice
- Auto subscription deductions
As per the various online sources, the following stats could be found.
The credit card issuers and the merchants are so willing to provide a smooth customer experience, as per data, the loss rate for the merchants is expected to reach $ 130 billion by 2023 because of the card-no-present frauds.
Out of all the chargebacks, 86% of them are the Friendly frauds.
81% of customers filed the chargebacks directly out of convenience as that was easy for them. Meaning to say, these customers cannot see the difference between the chargeback and the normal refund. And they do not know that because of it the merchant suffers a great loss.
Only 4% of the customers reach out to the merchant if they are dissatisfied.
The merchants had to incur $19 Billion because of the chargeback in 2017. It is expected to reach around $30 billion at the current financial rate by the end of 2020. The chargeback rate is increasing with a 20% rate every year.
Dealing with the Chargeback Fraud
It is a continuous process in which the merchant needs to collect the needed compelling evidence and required customized responses to make sure they have higher than average win-rates, to prevent the loss in the chargeback, and to win such fraudulent complaints.
1. Address Verification Service (AVS) Tools:
Installing the Address Verification Service (AVS) tools facilitated by the credit card issuers help to identify the doubtful transactions and can help stop the frauds.
AVS helps to match the address entered by the customer and the one with the cardholder’s credit card account.
The addresses are matched at the checkout and the issuing bank responds with the AVS code to the merchant. Merchants can decide to proceed with the transaction through this AVS code.
2. Card-Not-Present Transactions:
Under the Card-Not-Present transactions, the prevention measures include matching the addresses as explained in the above point, checking the validity of CVV security codes (mentioned at the back of the card), and preventing to save the card details from the merchant side.
However, if the criminal has stolen these details, the fraudulent transaction may appear legitimate. However, they cannot easily detect a type of card-not-present fraud called friendly fraud.
3. Risk Department:
Place a special workforce to analyze the buyer behavior and to trace any abnormal purchase.
4. Delivery Procedure:
Stringent delivery rules should be in place, for example, a signature from the customer and also check the returned items carefully when the pickup is done.
5. Friendly Customer Support:
Responsive and friendly customer support services should be in place. The customer turns towards the bank when they do not get a response or resolution from the merchant.
6. Refund Policy:
Returns and Refund policy should be clearly visible to the customer on each webpage.
7. Delivery Updates and Notifications:
Give timely updates about the shipping, tracking, and delivery information. The most important thing is to complete the order on time.
8. Subscription Deductions:
With regard to the subscription-based models, make sure the customers have clarity about the auto-deductions. You should provide them a clear option to enable or disable the auto-deductions of the subscription. Also, notify them before the next subscription is deducted.
9. Clear Descriptor:
One of the reasons the customers file the chargeback is that they do not recognize the payment on the statements, so make sure that your descriptor is identifiable.
10. Blacklist Risky Customers:
You can mitigate the risk of a chargeback from specific customers by black-listing them and preventing them from taking advantage of you.
11. Records and Paperworks:
Keep the strong and accessible records and paper-trail
12. Instant issue of Refunds:
As soon as the refunds are requested they should be issued or notified about when it will be issued. Keep the refund proof with yourself.
Merchants, in an attempt to provide the best customer experience, neglect the need to have the proper precautions against the chargeback.
The identity or address verification services are thought of as a disturbance in the checkout process for the customers. These types of merchants need to rethink the importance of the identity verification system. The merchant should make the optimum use of the technology and the right strategy to fight against friendly fraud.