How to Reduce Your Business Risk with Chargeback Management

Risk

The eCommerce industry has allowed businesses to thrive in the digital space, with quick and efficient transactions. However, eCommerce businesses face the risk of increased exposure to chargebacks in the form of both more fraudulent transactions and cases of friendly fraud. The card-not-present acceptance of both credit cards and debit cards has increased the occurrence of fraudulent transactions, while the shift of customer review of credit card transactions to online, particularly to mobile apps, has similarly increased the ease of raising false claims. Not all is lost as chargeback solutions exist to reduce the risk businesses face.

What is a chargeback? 

Typically, chargebacks are refunds initiated by a credit card issuing bank on the cardholders’ behalf for fraudulent or disputed transactions that are made with a credit or debit card. The problem chargebacks aim to protect customers from the financial impact of unauthorized purchases made with stolen credit cards also known as criminal or true fraud. They exist as a form of consumer protection.

However, chargebacks are not always legitimate and can be abused by customers seeking to game the system. This is known as friendly fraud chargebacks. An example would be a cardholder claiming a fraudulent purchase was made with their credit card by an unauthorized user after the cardholder had ordered and received the item in question. Therefore, chargebacks require investigation to determine their true nature. 

Why do businesses need to reduce and mitigate chargebacks? 

Chargeback management is imperative for any eCommerce business. It has been documented that almost four-fifths of online merchants have no chargeback mitigation solutions in place while statistics indicate that 86% of all chargebacks are illegitimate claims. The negative implications of allowing chargebacks to go unchecked become increasingly clear. 

Without a robust chargeback mitigation service, eCommerce business stands to suffer. For each chargeback claim of a friendly fraud nature, businesses lose out both financially and in other respects. Consider the cost of generating a sale, which includes the cost of stock, advertising and payment processing and then losing all of that and paying a chargeback fee on top; this can be both costly and demoralizing for a business.

The damage to a company’s reputation is another cause of concern, both in terms of direct and indirect consequences. A business may decide to accept many chargebacks to avoid the backlash from arguing against legitimate claims, as negative reviews may affect their reputation. However, false chargeback claims that go unchallenged can lead to a brand becoming an easy target for future cases of friendly fraud and even criminal/true fraud cases. A proactive approach is clearly needed to prevent a business falling prey to unnecessary chargebacks. 

Chargeback

What can be done to avoid chargebacks? 

There are various tactics that a business can employ to avoid chargebacks.

Before a transaction is approved, address verification services can be used to ensure the transaction is not fraudulent. Using this service will allow a business to verify the address provided by the customer is associated with the cardholder’s account. Additionally, verifying card security codes can help prevent fraud as it would entail the card being physically present during the purchase. However, this is not enough to completely protect against chargebacks as the card may have been lost or stolen leaving the cardholder unaware of the unauthorized purchase. 

Utilizing 3-D Secure 2.0 to ensure verification can help shift the liability for instances of fraud from the merchant to the credit card issuing bank. 3-D secure technology collects information from transactions that helps to prevent true fraud chargebacks that can also be used to counter friendly chargebacks. 

If a fraudster manages to bypass all these additional checks, the information collected is available to help produce evidence for a chargeback defense if any later claims occur. 

Many chargebacks occur due to miscommunication between the business and the customer. Therefore, following a transaction, customer service plays a significant role in providing the first line of defense against unnecessary chargebacks. By allowing the customer to raise their concerns, a business can respond by offering helpful information on issues like return policies or delivery timeframes. This will allow problems to be solved before chargebacks can occur. Thus, introducing a proactive approach to post-transaction issues can reduce the likelihood of chargebacks. 

When chargebacks occur, a robust approach is needed to deal with the claims head-on in a manner that doesn’t tie up significant manpower or resources. A solution should be introduced that can streamline and automate the process of gathering the evidence needed to refute the chargeback claims. 

Utilizing a chargeback mitigation solution such as Justt can ensure that all the avenues of recourse are used to successfully defend against chargeback claims. Not only does Justt turn manual chargeback aggravation into automated convenience, but its machine learning technology works constantly to improve chargeback dispute success rates to recover more money for you.

Bottom line

Chargebacks are a growing problem that provides a serious source of concern for eCommerce businesses. Although being affected by chargebacks can be disconcerting, all is not lost. Implementing an appropriate chargeback management solution can help reduce the risk of losing out to future claims.

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