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11/04/2021

5 Ways Retailers Can Work to Reduce Chargeback Fraud

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a hand holding a card
Retailers can employ these strategies to diminish high levels of chargeback fraud.

As global e-commerce continues growing at its feverish pace, retailers are understandably excited and embracing innovative solutions to ride the wave. But alongside that massive growth lurks the always villainous fraudster. There’s good news though – technology is making it simpler and faster to recognize when and where there may be a problem and to quickly address it.

One of the most common cases of e-commerce fraud is chargeback fraud. A chargeback is when a customer successfully disputes a transaction, resulting in the payment being reversed by the cardholder’s bank and debited from the e-commerce business. Not all cardholder inquiries result in a chargeback though – only transactions with a successful submitted dispute case from the issuing bank will be refunded.

Chargeback fraud can be used to describe a number of consumer behaviors, since a customer can file a chargeback request for any reason. Some of the most common occurrences are when a buyer misunderstands a merchant’s policies, when a buyer experiences buyer’s remorse (also known as friendly fraud), or deliberate fraud. No matter what the scenario is, the merchant sees the same end result – a loss of revenue and merchandise, along with higher fees and long-term threats to a business’ long-term viability. Luckily, retailers can employ a number of strategies to diminish high levels of chargeback fraud.

Add Security Measures with 3-D Secure

As online marketplaces and digital transactions grow in volume, many merchants have found that it’s worth investing in security measures like 3-D Secure to ensure more secure online card transactions. By activating 3-D Secure, a merchant may not be held liable for fraud chargebacks as the card issuer is able to require cardholder authentication. Security programs like this reduce the risk of unauthorized card use, boost buyer confidence in your business’ security protocols, accelerate sales, and protect against chargebacks. 

Use Blacklists

Another solution that has worked for merchants is to create blacklists for repeat chargeback offenders. Businesses that have been burned by high counts of friendly fraud have found that creating user blacklists helps to ensure that they aren’t letting small pools of people take away large amounts of revenue. While this prevents certain customers from entering transactions with you in the future, it’s often worth it long-term.

Communicate Regularly and Clearly with Customers

While there is always the possibility of deliberate fraud, there is also a large chunk of chargeback fraud that comes with miscommunication or misunderstanding between a merchant and their customers. One of the easiest ways to combat risk of this type of chargeback fraud this way is through consistent and quality levels of customer service. Any company that has a high level of e-commerce activity should provide live customer care through multiple channels – from phone and email to chatbots on the company website or social media. It’s imperative for customer service professionals to respond quickly to all customer inquiries to instill confidence in the purchases made, making customers less likely to turn straight to chargebacks.

Review Your Billing Descriptors & Transactions

One common reason for transaction disputes is when a customer can’t recognize a business’ billing descriptor in their card statement, sometimes confusing the purchase as part of a scam. Merchants must be able to ensure that a customer can recognize their place of purchase. With e-commerce activity growing, merchants should move away from including a physical address in the billing statement and instead include the company’s website to reduce confusion.

It’s crucial for businesses to conduct regular reviews of their transactions to point out any recurring reasons why purchases turn into disputes and eventual chargebacks. Through regular examination, you can evaluate what needs to change with the checkout process and prevent these issues from continuing with return customers or begin with new ones.

Work with the Right Payment Processor 

The payments landscape is complex and can be difficult to understand, let alone manage. For business owners looking to expand into e-commerce, it’s often worth working with a third-party payments processor that understands the pain points associated with chargeback fraud management. The process of managing chargeback exposure is time-consuming and may require more energy than it’s worth. By working with fraud professionals, business leaders can focus on improving other aspects of their business, creating more opportunities to use resources in a more effective manner, and continue to grow the business.  

-Ralph Dangelmaier, CEO of BlueSnap