friendly fraudMost business owners know that a high chargeback ratios hurt their profit margins. But what they may not realize is that more than 80% of claims filed are attributed to “friendly fraud”. In other words, only about 20% of chargebacks claimed are because of actual theft and use of stolen credentials. This means that your opportunities for chargeback prevention begin with your own customers.

However, those numbers have been increasing. Especially for companies that make it easy for the fraudster to get their foot in the door.

With increasing numbers of true card-not-present fraud, as well as a rise in consumer abuse of the chargeback process, it’s more important than ever to take an inventory of where your company lies. Once you know your chargeback ratio, you can better evaluate what needs to be done. Then create a proactive strategy to manage and reduce your company’s fraud incidence.

In Consequences Part 1 we talked about what a chargeback is and how a high ratio can potentially affect your business for the worse. Today, we are going to continue that discussion by diving into the various ways merchants can fight back. We’ll learn what steps you can take to help stop chargeback incidences before they happen. And how to manage the ones you can’t avoid.

Reduce your chargeback ratio by disputing illegitimate claims.

Unfortunately, disputing a chargeback claim is a tedious process that takes not only time (about 2 hours per incidence) but also quite a bit of money. However, it is still a very important part of managing your business.

It is critical to make the effort to look into your chargebacks. Merchants must determine which ones are legitimate and which are likely a case of friendly fraud. Then take the time to dispute the chargeback claim when you believe the charge was processed for a legitimate purchase.How to fight chargeback disputes

You must be able to present what the bank considers “compelling evidence” in order to dispute a chargeback. Fortunately, the “evidence” is collected with each payment transaction. This information is used to help determine if a charge is for a legitimate purchase. Because this type of information helps to flag a purchase that is potentially fraudulent.

Every merchant should keep detailed records of all transactions.

Records of the purchase should include any and all information that you can acquire about the transaction. Keep a detailed merchant receipt, including purchase time and date, and any previous purchase history information you may have from the customer.

There should be a detailed description of the goods or services, including proof of delivery date. And for virtual products, date and proof of download. You might be able to configure your POS software to record internal and external data. This data can include the IP addresses, device ID, email and billing addresses, and geolocation of the cardholder.  

This way, a merchant could potentially prove that the customer made a purchase from a laptop at the cardholder’s address. This is very helpful in proving that the purchase did, in fact, start at their address, for instance.

Keeping detailed records and tending to chargeback claims in a timely manner goes a long way toward reducing lost income. But it does not lower your total chargeback incidence. And that is the number both the bank and the card brands are concerned with.

Fortunately, there are also a few simple steps you can take to reduce your incidence of chargebacks before they happen.

manage chargeback ratios with industry best practices.While it is important to catch fraudulent situations while they’re happening, it’s perhaps more significant to keep the fraud from knocking on your door in the first place. This in turn helps to achieve more balanced chargeback ratios.

A good fraud prevention strategy uses both technical and human elements to reduce the possibility of a chargeback. It is possible to recognize anomalies in purchases in addition to recognizing real customers. This helps to differentiate between a real purchase and possible fraud. This can all be accomplished by coupling in-house chargeback prevention strategies, software, machine learning, and collaboration between fraud experts and merchants.

Friendly Fraud chargeback prevention strategies start at home on your website.

Lowering your chargeback ratio begins with chargeback prevention.

As we know, friendly fraud stems from customer satisfaction. With that in mind, there are some proactive steps that help reduce the chance the customer will be unhappy.

The first place begins with your product and product descriptions. Make sure the customer knows what they are getting and gets what they thought they were getting. Be as detailed as possible, but also be thoughtful when creating product descriptions. If your product is a download or service, make sure it delivers what it promised.

Many times the customer commits “friendly” fraud because they felt the product was unsatisfactory or not accurately represented on the site.

Lack of communication is a large contributor to consumer chargebacks.

Adopting features that provide more transparency in the process is an easy way to garner trust from customers. It will also help to reduce the chance they’ll be frustrated with the process. Many consumers forget they ordered a product or don’t recognize the name of the business by the time they get their statement.

Clear and continuous communication lines between merchant and customer throughout the purchase and delivery process helps in two ways. Not only does it create a paper trail, but it also goes a long way to keep customers from disputing a charge. Providing them with regular updates about the status of an order can reduce friction as well as optimize the entire purchase process. Be sure to provide customers with an order confirmation, tracking number, and delivery time. Merchants can also empower their customers to log in and see what’s happening in their account.

Powerful tools help detect fraud as well as aid in chargeback prevention.

Friendly fraud contribute to high chargeback ratios.

Utilize the powerful tools available to each merchant from Visa/MasterCard to help to reduce fraud and flag potentials.  They designed tools such as CVV and AVS to help detect potentially fraudulent transactions.

CVV stands for Card Verification Value (the three-digit code on the back of the card). Implementing CVV helps to prove the card actually exists and was not virtually duplicated. The Address Verification Service, or AVS, is a feature that verifies that the customer’s billing address. It compares the billing address on file for the card with the one that is being used by the purchaser. Both features help to flag a potential fraud situation before it happens.

Design subscriptions and recurring billing with integrity. 

With subscription services, and therefor recurring billing, take care to make policies painfully clear to the consumer who’s signing up. Display in bold type that the purchase will be a “recurring transaction”. and don’t forget to include the frequency of the transaction.

Don’t make your terms too difficult to find on your website. The customer could use that to say they didn’t know they were signing up for recurring billing.

Another transparency tactic is to place a checkbox on the purchase page for customers to agree to the terms of purchase. Only once the customer has checked the box and essentially “agreed” to terms of service will the purchase complete. This way it’s much more difficult for customers to say, even psychologically, that they didn’t know it was recurring.

Your company name and billing descriptor must align.

One of the most common codes used for a chargeback is the one for the customer “not recognizing the merchant”. This is so avoidable it is almost ridiculous, but it happens all the time.  This happens when the cardholder gets their statement and cannot recognize the merchant’s descriptor on their bill. They assume immediately that someone stole their card information and used to make the purchase.

Many merchants make the mistake of thinking they don’t need website URLs or a customer service number to appear on the customer’s statement. Sometimes they use a different DBA the customer doesn’t recognize. This only adds to a customer’s feeling that it could be a fraudulent charge.

The more merchants are transparent about who they are and how to get ahold of them, the more legitimate it feels for the consumer. It also gives them the opportunity to reach out directly before deciding to make a chargeback claim.

Since friendly fraud is the largest contributor to your chargeback ratios, these steps will go a long way to preventing this type of fraud. And, in the end, have a positive impact on your overall chargeback ratios.

Partner with an experienced Merchant Services ProviderDon’t go it alone, tap into the expertise and knowledge of a good Merchant Service Provider to help with chargeback prevention.

Lastly, it is important to make sure you work with a merchant processor who is educated in the ins and outs of high-risk processing. There are advantages to working with a payment provider with the knowledge and experience to advise you on how best to manage chargebacks for your particular business model.

A Merchant Service Provider with an intimate understanding of the inner workings of the financial industry will better be able to keep track of the continuously changing and updating Chargeback rules and regulations.

Merchants will need to do their part as well. Merchants should audit transactions for flags to potential chargebacks. Keeping an open line of communication between you and your processor can help make the chargeback process a bit less painful too. Some chargeback disputes qualify for automatic representment by the acquiring bank-the bank who holds the business’s merchant account. So check with your processor and make sure the acquiring bank is involved and determine if they are possibly already handling it.

Managing chargebacks requires a combination of expertise and tools to create the right strategy.  Then regularly surveying the reporting information you’ve been tracking and storing in order to gauge performance.

Every business is different, their risk is different, and a strategy should be tailored to each company’s specific needs. There is no one size fits all when it comes to chargeback management. To help create the perfect chargeback management strategy for your particular business, give the ETA Certified Payments Professionals at Bankcard Brokers a call today.

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