How to fight fraud and reduce chargebacks

What is a chargeback?

Before we get into talking about fighting fraud and reducing chargebacks, it’s important to first explain what a chargeback is. Most merchants who accept credit card payment gateway are probably already well aware of what a chargeback is and how it can affect their business. But for those who don’t know, a chargeback is essentially the reversal of a credit card transaction which is forced by the customer’s credit card-issuing bank. Chargebacks are typically initiated by the credit card holder by calling their card-issuing bank to dispute one or more transactions. This can happen for a number of different reasons which will be discussed in detail later on.

What are some tools online payment gateway processors provide merchants to help prevent fraud and chargebacks? 

1. Blacklists and Whitelists: A blacklist is a list of items that are not allowed by a payment gateway processor. For example, if you have had a customer from a specific IP address who has conducted suspicious activity on your website, you can add their IP address to your blacklist which blocks them from completing a credit card transaction. You can also blacklist entire countries using 2-letter country codes or specific customers by email address.
A whitelist works similar to a blacklist but instead of listing country codes or IP addresses that you don’t allow, you instead block everything and then list the exceptions that you do allow. If your business is limited to Canada, you can add Canada to your whitelist and all other countries will be blocked automatically.
2. Maximum Limits: You can set limits to the maximum sale amount, or pre-authorization amount allowed. This can stop fraudsters from making unusually large purchases with stolen credit cards.
3. Velocity Checks: Velocity checks are based on timing. These checks can be configured to block anyone who attempts to process a transaction with the same credit card or from the same IP address a certain number of times within a certain amount of time – for example, more than 3 times within 120 seconds. This helps to prevent fraud from customers who are running through a list of credit card numbers until they find one that works. If someone is trying to do this, after 3 attempts (or any number that you specify) they will be blocked.
4. Trading Name: The trading name that appears on your customer’s processing statement must be something that your customer will immediately recognize. Additionally, many processors try to add your business’ contact phone number in the trading name that appears on your customer’s credit card statement if there is room. This is done to give cardholders an opportunity to call your business to resolve any issues with the transaction rather than directly calling their card-issuing bank to dispute the transaction. Good customer service is important here because if a customer makes the effort to call your company but does not get a satisfactory response, they are then likely to progress to a chargeback with their card issuer.

How to defend yourself and win chargebacks:

Sometimes chargebacks happen – despite your best efforts to prevent them using all the tips discussed above. In these cases, you can follow the advice below to help you win chargeback disputes.

Respond quickly: When your processor contacts you to request information about a transaction dispute, it is very important that you respond quickly. As the merchant you have only a short window of time to submit any evidence you have to support your side of the story. If you don’t respond in a timely manner, the cardholder will automatically win the dispute by default.

Ensure refund policies are clearly displayed: You should always have a clearly posted refund policy on your website that customers can reference. If your refund policy appears prominently on your website, customers will be expected to know what they are getting into before they make a purchase. A good refund or return policy can not only help you get sales, but also help the customer get the support they need if and when they need it. As stated above, if you have a policy such as “no refunds”, it is imperative that the customer knows about it prior to checkout. If the customer is unaware of this policy and then tries to get a refund, it can easily end up in a chargeback situation for the merchant.

Ship only to verified billing addresses: Ship only to the verified billing address and use a shipping carrier that verifies delivery. Fraudsters will often try to ship goods purchased illegitimately to an address that is different from the address registered to the cardholder. This is so they don’t have to go to the cardholder’s house to pickup the package when it get delivered. Having a policy of shipping items only to the registered address of the card helps ensure that the registered cardholder will receive the goods, even if they did not order them. It is more likely in this scenario that the goods can be returned to you as a merchant.

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