Are you wondering how to help your customers avoid chargeback fraud? Check out this ultimate guide to chargeback prevention.
Online merchants face a growing obstacle that sits between them and success. That challenge is customer chargebacks.
Chargeback problems cause both damages to the relationship with your customer and to your revenue. What’s worse is that they could threaten your business’s ability to process payments entirely.
The pandemic led to a large amount of card fraud. And eCommerce transactions aren't slowing down anytime soon. It's even estimated that up to 60% of chargeback fraud is friendly fraud! To learn even more, check out our complete guide to chargeback fraud.
We will discuss a few chargeback prevention strategies you can take before your chargebacks get out of control and cost your business big losses.
Chargeback Prevention of Merchant Errors
A “merchant error” chargeback is a term that refers to any chargeback that is due to a cardholder that did get what they purchased per the agreement with the merchant. Also, it refers to an erroneous charge from a merchant like a duplicate, unauthorized, or incorrect transaction.
Merchant errors can arise from challenges like:
- Processing errors
- Unresponsive customer service
- Shipping problems
- Misleading marketing
- Unclear policies
It may be impossible to pinpoint it just to one issue, but collectively, merchant errors such as these add up.
The good news is that these errors are entirely preventable. It begins with inspecting your current practices and policies to identify loopholes. Then, rewrite your policies and fill in the gaps to close the loopholes that can cause you to lose revenue.
How Do Cardholders Use Chargebacks?
Abuse of the chargeback system is a growing challenge for online merchants. When you first approve a transaction, you receive the revenue from the cardholder's bank after authorization (well, after clearing and settlement happens). But that revenue might never be realized if the cardholder files a chargeback after receiving their order.
Even worse, your bank and the card networks will catch on to your rising number of chargebacks and will begin imposing restrictions and fees, which can absolutely cripple your business and your business's reputation.
Get your free copy of The eCommerce Guide to Chargeback Management today to learn how to fight back against chargebacks!
Chargebacks all come with fees, which can be as high as $25 per chargeback. Vesta has been measuring and preventing fraudulent transactions for more than 25 years, and we find they make up approximately 10-13% per quarter of all Card-Not-Present (CNP) transactions. Imagine the cost to your bottom line if 13% of your transactions multiplied times a $25 chargeback penalty for each!
Preventing Chargeback Fraud
There are a few different types of chargeback fraud. Criminal credit card fraud happens when a stolen credit card or card number makes an unauthorized transaction. This type of fraud is expanding worldwide.
Often, merchants overestimate criminal fraud and there must be an investigation first to eliminate this as a possibility of the chargeback problems you have. You can use tools to help you identify criminal fraud like using:
- Fraud scoring
- Card network verification
- Detection processes
- Internal manual review processes
Friendly fraud happens when a legitimate cardholder makes a purchase but files a chargeback with their bank to recover their funds after they receive the service or product. It's another malicious type of chargeback fraud that can be very difficult to prevent before it happens.
The best method of preventing chargebacks from friendly fraud is by becoming familiar with the customer transaction history with your business, network inquiries and chargeback alerts. This gives you the option to refund an order or provide an additional transaction before a chargeback resolves the inquiry.
Once you identify the extent of your fraudulent chargeback problems, you can strategize improvements.
Chargeback prevention starts with a few important strategies. First, use fraud prevention tools that are available to you.
Next, improve customer service. You want to communicate well with your customers to avoid complications in fulfilling orders. Keep your customers posted on every situation.
You’ll want to eliminate merchant errors and provide authentic marketing with clear descriptions of the items for purchase. Be specific to eliminate any future misunderstandings.
Also, make sure that your team manages your recurring payments closely. Customers with recurring charges demand exemplary service, and you want to give them what they expect. Not fulfilling expectations can lead to chargebacks.
Ask a Professional for Help
Many times, you are better off getting expert help, and that’s where we come in. Vesta solution uses advanced machine learning technology and data science to help customers like you with chargeback prevention enabling you to grow your business.
Contact us today and let’s discuss strategies for your online business.