Effective Ways to Reduce Fraud Chargebacks

Chargebacks are a real menace in e-commerce. Both mobile online payments expose a merchant to frustrating chargebacks. But that doesn’t mean you have to accept them as a reality and do nothing about it. One common type of chargeback is chargeback fraud.

What is chargeback fraud?

A chargeback is a reversal of credit card payment following a client’s request and completed by the credit card company. It occurs when someone contacts their credit card company or bank and ask for money reversal for several reasons.

Chargeback fraud, also known as “friendly fraud” includes identity theft cases in which a customer deceivingly says a product or service was never ordered or was not delivered. A customer may also make an online purchase with their credit card and then later ask for a credit card company’s chargeback on receiving their purchase.

When the cardholder disputes the charge to their credit card, the bank makes a reversal while the customer keeps their purchase.

Chargeback frauds cause a loss of physical goods and cause financial losses through lost shipping, chargeback fees, and transaction costs.

Ways to reduce fraud chargebacks

There are several ways to reduce chargebacks, including:

Look for unusual activity

You need to monitor transactions for unusual activity such as orders for many costly products of the same brand or a large number of products. Review the location’s transaction, and if the billing address differs from the shipping address, it would be best to contact the customer to verify the transaction.

Get the reason code

Reason code is used to inform merchants of adjustments. Each card, facilitated by credit card networks, requires a different kind of defense. For instance, you cannot fight credit card theft the same way you would for the alleged merchandise deliverance failure. However, since these codes are not the same across payment networks, it would help to stay up to date on codes for payment networks you use.

Customized fraud protection

There are several fraud tools merchants can use for adequate protection without overlap. These tools for merchant fraud protection are integrated into online shopping carts and e-commerce platforms. They work by using machine learning algorithms to identify fraudulent transactions through email addresses, IP locations, addresses, and device fingerprinting.

Capture CVV

Capturing Credit Code Verification Value [CVV] in every transaction helps add an extra layer of security to transactions. Requesting for a three or four-digit code helps prove the customer has the physical card at that particular time.

Choose your battles

Fighting every chargeback or dispute that comes your way can actually be a setback to your business. If the chargeback amount is little, it could best to refund the money to the customer. Keep in mind that payment processors keep tabs on the number of chargebacks filed against your business and may identify you as high risk.

Several penalties might come your way, including added fees, higher processing rates, and worse still, dealing with a suspended account.

While there is no clear cut solution for entirely wiping out fraud from your online store, employing preventive measures can put you in a better position to identify different forms of chargeback frauds and help you reduce them.