Approaching Chargebacks from the Defense and Offense
July 20, 2015
Why merchants should not simply let chargeback fraud claim their profits.
If you are running an eCommerce or mCommerce business, you are most likely already aware of the great risks of fraud. The anonymity of card-not-present transactions make them gold mines for criminals. It is probable that we will see an even larger rise in CNP fraud in the coming months with the growth of EMV chip-and-PIN cards in the United States. EMV usage is surging in preparation for their full integration this October. The technical standard relies on payment cards imbedded with microchips, making fraud at point of sale terminals increasingly difficult for criminals to achieve, which pushes them online.
While there are many types of fraud that put the success of online business at risk, they don’t all come from the same place. Chargeback or Friendly Fraud can not only rob a merchant of product and profit, but it even charges them a fee to do so. Chargebacks are refunds issued to cardholders directly from their issuing banks. Chargebacks were invented to protect consumers from shady business practices and identity theft, however, they have become a commonly misused tool for cyber shoplifting. Friendly Fraud occurs when a shopper makes an authorized purchase on a payment card, but request a refund from their issuing bank. While there are many reasons shoppers may commit Friendly Fraud, they all have the same result.
Merchants are put at risk every time an electronic purchase is processed. Chargebacks are an inevitable part of conducting business, but only when they are warranted. There are ways merchants can protect themselves—and their profits—from unnecessary chargebacks. There are also ways that merchants tend to leave the door wide open to fraudsters. Being informed of all options at play is key.
Chargeback prevention is something that all CNP merchants should consider, whether they have a current chargeback problem or not. Every time a merchant loses a chargeback dispute they miss out on their profit from the sale, the product itself, and any funds from the fees incurred. By taking the necessary steps to prevent fraudsters from filing unlawful chargebacks, merchants are able to not only save sales, but avoid costly nonrefundable chargeback fees.
For the chargebacks that it is impossible to prevent, merchants are not left without options. Once a chargeback is passed from the issuer to the acquirer, the merchant is given the opportunity to prove the authenticity of the transaction. This is the merchant’s chance to gather evidence that proves the purchase was made by the authorized card holder and the product or service was delivered as described in a timely, appropriate manner. If merchants win the dispute, the sale is reposted on the cardholder’s account. Representing chargebacks can help merchants retain profits and fight Friendly Fraud.