Fraud: how to effectively handle chargeback fraud

If you’re a business owner or work in e-commerce then you can appreciate the fact chargeback fraud is unfortunately an unavoidable part of your day-to-day operations.

Whether it’s friendly fraud or has been initiated with malicious intent, chargeback fraud is continuously hurting businesses and their net revenue.

The pandemic forced more consumers to turn to online which in turn has led to an increase in card-not-present transactions.

Criminal activity follows suit and according to a report by Juniper Research, e-commerce merchants globally are expected to to lose almost $20 billion in 2021 due to fraudulent activities.

Despite the alarming figures, there are many ways in which to prevent chargeback damages.

It’s your word vs their’s

Banks and credit card companies tend to favour the consumer when disputes arise, depending on the context, so often it’s up to the merchant to challenge incorrect chargebacks.

This can often create additional pain to what already exists and risk teams can lose hours with a single dispute that still might not end in the merchants favour.

Thus many opt for simply dealing with the loss rather than wasting time fighting the chargeback or work on with a partner that offers a chargeback guarantee.

Each chargeback request involves a number of different stakeholders:

Cardholder: the customer who initially disputes the transaction.
Issuing bank: the bank that issued the card that the customer used for the purchase.
Acquiring bank : the bank or credit company that handled the transaction for the merchant.
Payment gateway: the software that’s used to conduct the transaction.
Merchant: the business which originally sold the product.

Furthermore, card companies such as Visa and Mastercard are enforcing stricter guidelines on the amount of chargebacks businesses can be subjected to.

Ultimately this means that if your company is faced with chargeback fraud frequently you could be placed onto high-risk lists or even barred from accepting payments with certain cards.

The key challenges of Fighting Friendly + Chargeback Fraud. Let’s dive into the differences between the two, why the subject is still such a problem for merchants and how to fight chargeback fraud. https://t.co/gKHw8Pocq4 pic.twitter.com/ZwQmCgtrJC
— SEON. Fraud Fighters (@seon_tech) June 25, 2021

Caution - chargeback guarantee models

It is worth noting that operating with a chargeback guarantee model can lead to a conflict of interest. If your fraud prevention vendor sees continuous chargeback claims, they will not sit by and let it continue without investigation.

Since your vendor is liable to the costs this can result in a more cautious strategy, leading to more declined payments and fewer sales for your business as they look to protect themselves.

For businesses in competitive industries, this brings reputational risk as the customer in question will often look to go elsewhere to buy the product they want if their initial payment is declined.

Place your customer on a pedestal

Without a customer, there is no business. Simple logic but often organisations underestimate the value in truly understanding the customer as they enter your site to make a purchase of products or services.

Some common methods that can help mitigate chargeback risk include:

Ensuring that your business name is clearly listed on transactions and bank statements.
Implementing a returns policy that favours the customer working with you instead of against.
Clear product descriptions to ensure customer satisfaction.

However, there will always be ill natured users who approach with the intent to leave your business out of pocket.

Yet many chargebacks, both friendly and harmful, can be avoided through risk management solutions that operate without impacting the customer journey.

Using risk management tools to curb chargebacks

An example of using fraud prevention tools to help prevent chargebacks is through the use of digital footprint analysis. This can provide your business with an easy to understand customer profile before they have registered.

One aspect of this analysis is through the use of device fingerprinting, which enables you to track users and spot suspicious activity such as those using incognito browsing, emulators or virtual machines.

Each time a user connects to your website, it’s through a device (ie smartphone) as well as an internet browser (ie Google Chrome.) This along with other data points can help form a user ID to help identify suspicious users.

Utilising open sourced data enrichment is another effective way to build your user profile.

Through a single data point (email address, phone number) some solutions are able to provide information on if the data provided is in fact valid, if the email address domain was disposable, whether it has any linked social accounts.

Conclusion

The pandemic has caused a shift in how people purchase goods and services, with more people than ever before looking at online stores.

It is essential to find a balance between front-end fraud solutions that protect your business from fraudulent transactions and back-end products that support sales, remove the risk of false positives and prevent losses related to true or friendly fraud.

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