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4 Ways to Reduce Chargeback Fraud


Chargebacks refer to when a customer disputes a transaction with a merchant, allowing them to receive their money back while keeping the product or services that they received. Oftentimes, the merchant isn’t even aware that a transaction is being disputed until after the funds are taken from their account. At this point, they have only two weeks in which to respond to the chargeback.

It might seem like a hopeless cause, but merchants shouldn’t take chargebacks lightly. In fact, chargebacks make up 35% of all fraud losses. That can be a huge hit to your bottom line.

Don’t Give Up Easily

The worst thing you can do in the face of a chargeback is nothing. While dealing with the chargeback process can be complicated and lengthy for merchants, it should never be avoided if there is a genuine cause to believe it is a case of fraud.

While there is the cost of labor and time associated with fighting a chargeback, doing nothing can end up costing you more. Merchants should keep in mind the fee for the original transaction, the fee for the chargeback, the product loss, and the threat of a terminated merchant account if too many chargebacks are accrued. This can lead to being classified as a high risk merchant, which comes with an additional set of headaches and fees.

In the face of chargebacks, the first course of action should be looking into ways to dispute it. 

Know Where to Investigate

You should know the different data points to investigate to help uphold your claim. You should look over all the information for the payment and shipping processes, including shipping date, tracking, receipt details, delivery confirmation, and device fingerprinting.

You should also review any correspondence with the customer, including emails, live chat, and phone call transcripts. This can provide insight into any issues with the customer or reasons to support that they are committing fraud

If you are able, looking at the transaction history of the customer, both with you and other businesses can help identify if this person has a history of chargebacks.

You should even go so far as to look for evidence of receiving the product, such as pictures or posts on their social media.

Make Sure You’re Using Fraud Tools

Being knowledgable of and investing in the right tools to protect your business against all types of fraud should be a priority. This includes requiring customers to use their CVV code upon checkout to ensure they actually have the card.

Using AVS will allow you to authenticate that the address associated with the card is the same that the customer is using.

3D Secure should also be implemented into your e-commerce platform. This provides another layer of password authentication from customers to ensure it’s the legitimate user.

Identify Any Issues On Your End

Sometimes chargebacks aren’t a matter of fraud. Merchants should be aware of any issues on their end that might be confusing to the customer or prompting chargebacks.

You should always clearly layout your shipping and return policies explicitly in language that leaves no room for interpretation. 

Reviewing the customer service records with the client can also help you gain invaluable insight as to where customer service can be improved to lessen the likelihood of chargebacks occurring.

If you offer recurring payments or subscription services, make sure that your customers are wholly aware of the conditions and terms, as these services are frequently the cause of chargebacks. You can even offer a “no strings attached” cancellation policy to help ensure that they won’t go after a full refund.

When handling chargebacks, it’s best to know your options and do everything on your side to not only fight them but reduce the likeliness of them happening in the first place.