August 10, 2022

    The Ultimate Guide to Chargeback Prevention

    AdobeStock_250318394Are 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 at all.

    The pandemic led to a large amount of card fraud.  According to a recent Nilson Report, such fraud has reached losses of $28.65 billion globally.

    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.

    There is good news to these errors, which is that they are preventable. It begins with inspecting your current practices and policies to identify holes. Then, you’ll want to rewrite policies and fill in the gaps to close loopholes that can cause you to be out of revenue opportunities.

    Chargeback Fraud

    Chargeback fraud is a growing challenge for online merchants. When you first approve a fraudulent transaction, you receive the revenue. However, you will end up with big losses that become unsustainable.

    What may eventually happen is that banks and networks will catch on to the rising number of chargebacks you are getting and will begin imposing restrictions.

    Chargebacks all come with fees, which can be as high as $25 per chargeback. Our company has been measuring and preventing fraudulent transactions for many 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 Chargebacks of Criminal Fraud

    There are two different chargeback frauds, and one is a criminal. 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

    Once you identify the extent of your criminal fraud chargeback problems, you can strategize improvements.

    Preventing Chargebacks of Friendly Fraud

    Friendly fraud is when chargebacks are illegitimate cases, and you can expect a higher percentage of chargeback reversals. This type of chargeback can help your company improve your reputation with banks as you recover your revenue.

    The best method of preventing chargebacks from friendly fraud is with 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.

    Chargeback Solutions

    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.


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