How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks Chargeback prevention has a direct impact on profitability in two different ways.
Mainstream processor will probably How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks:
In addition, you will forfeit all shipping and handling charges and even the value of the item sold if it is returned to you in an unsaleable condition. On the other hand, and in the high-risk world this is where it makes a real difference, your chargeback rate affects the terms your payment processor will offer you. These include your discount rate, reserve period and payout schedule.
Oh, and I haven’t even mentioned the industry rules that threaten to terminate your trading account once your chargeback rate exceeds one percent.shut you down long before you get close to that limit, but let’s leave that aside.
The point is that chargebacks are very costly and the important question is what to do to keep them at bay. In a series of posts over the past few months, I’ve explored all of Visa’s chargeback reason codes and offered some suggestions on how to manage them.
Today I’m going to take a closer look at the three most common types of chargebacks in the e-commerce world: “unauthorized use”, “authorization not obtained” and “recurring transaction”. If you can keep these three in check, you’ll be in good shape.
The 3 most common types of chargebacks
Here is the reason for these chargebacks:
1. Unauthorized use — these chargebacks are the result of transactions that cardholders claim were processed without their authorization. Unauthorized transactions are often fraudulent, but even more often they result from a family member using the card without the cardholder’s authorization.
In either case, the issuer will usually replace the compromised card. As we’ll see in a minute, collecting card security information and implementing fraud prevention services at the checkout will help reduce this type of chargeback.
2. Authorization was not obtained – there are several possibilities as to why this could be. For example, a merchant could try to override a rejected authorization response (force a transaction, in industry parlance). Alternatively, after being declined, the merchant can obtain voice authorization or the key to enter transaction information.
This type of chargeback is often the result of several partial deposits made on the basis of a single authorization. As we will soon see, these chargebacks can be avoided by following good processing practices.
3. Recurring Transactions – Apparently applicable to a specific group of merchants, these chargebacks are usually the result of transactions processed after the cardholder has canceled – or claims to have canceled – a subscription, membership or some other service that is provided on an ongoing basis.
These chargebacks can also result from installment transactions, but this happens less often, since in such cases the number and amount of all payments are pre-defined. Honoring cancellation requests and immediate termination of payment plans will help prevent these chargebacks, as will using clear billing descriptors.
How to avoid these chargebacks
Here are specific best practices you should follow—some of which can be used for one of the three types of chargebacks under consideration, while others have a broader impact:
1. Get authorization approval for each transaction.
2. The transaction amount must never exceed the authorized amount.
3. Avoid using voice authorizations unless absolutely necessary.4. If the authorization approval is more than seven days old, you must re-authorize the transaction before settlement.
5. Always use the Address Verification Service (AVS) and process the sale only after receiving a positive response from AVS.
6. Get a delivery confirmation for each shipment.
7. Consider using the association’s 3D Secure Services – Verified By Visa and MasterCard SecureCode as an additional layer of security for online credit and debit card transactions. 3D transaction confirmation proves card ownership and protects you from certain types of chargebacks.
8. Always ask for card security codes: CVV2 Visa, CVC 2 MasterCard and CID Discover and American Express.
9. Process refunds as quickly as possible How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
10. Notify your customers by email of refunds or membership cancellations. Inform them of the refund processing date and include the reference number.
11. Make sure your billing descriptor is set up correctly and shows your phone number so that if there is a problem your customer can contact you directly instead of calling the card issuer to dispute the transaction How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
12. Make a customer support phone number and email address available on your website so customers can contact you directly. In fact, you can’t open a trading account without meeting these requirements first – and that’s a good thing.
13. Make your terms and conditions clear on your website. It must also be on the same checkout screen that displays the total amount of the transaction or on one of the websites your customer accesses during the checkout process. Require customers to confirm acceptance by clicking an “I agree” or similar confirmation button.
14. Email your customers the details of each transaction and state that their cards will be charged.
15. For monthly fees or other recurring payments, obtain written or electronic signatures from your customers giving you express permission to charge their cards on a regular basis.
16. Make it easy for your customers to end their membership or subscription and cancel a recurring plan – have a “no questions asked” policy.
These are all very basic rules that anyone should be able to master without too much trouble, yet they are routinely ignored by traders. There is no excuse for some of these, such as creating a clear return and cancellation policy and following that policy, but things are often more complicated than that.
many merchants refuse to ask for security codes, believing that it might confuse or otherwise discourage some of their customers and lead to lost sales. More generally, some merchants try to minimize as much as possible the amount of information they collect at checkout, which they find increases their “conversion rates” and reduces “checkout abandonment.
” That may be true, but such practices also inevitably lead to higher chargeback rates, which, as we’ve noted, can quickly get you into big trouble. Still, the decision is yours How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
Learn what chargebacks are, how the process works, and how you can avoid them.
January 12, 20224 minutes
Chargebacks were introduced to offer consumers an easy way to dispute suspicious transactions and protect them from fraud. But for businesses, chargebacks can threaten revenue, especially as friendly fraud becomes more common.
Although chargebacks are a part of business (and a good sign that your risk management strategy isn’t too tight), there are ways to reduce them How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
This article will explore what chargebacks are, how the process works, and how you can prevent and respond to them.
What is a chargeback?
A chargeback occurs when a payment is reversed after a customer disputes the charge on their statement.
The customer may have received a damaged product. Or maybe the merchant made a processing error and accidentally charged the customer twice. In these cases, the customer can file a chargeback with their bank for credit or debit card transactions How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
After approval, the customer will receive the transaction amount back in full. However, if the merchant does not agree with the settlement claim, he has the option to defend himself against it How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
Read how iconic footwear brand Hunter reduced chargeback fraud by 90%
Chargebacks vs. refund
Although chargebacks and refunds involve refunds, they are very different.
Customers can usually request a refund directly from the merchant as part of their refund policy. However, sometimes the merchant may reject the refund request.
Perhaps the merchant claims that the product was not damaged on arrival, or believes that the package was indeed delivered on time. If opinions differ, the customer can request a chargeback.
In the case of a chargeback, the customer contacts the bank (not the company) to cancel the payment. The chargeback process takes longer and involves several more stages than a refund. And any chargeback fees are significantly higher than a refund How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
How does chargeback work?
The chargeback process varies depending on the payment provider. At the basic level, the customer requests a chargeback and the bank confirms it. The funds are debited from the merchant’s account and then returned to the customer. The merchant can then object to the chargeback.
In a little more detail, it usually looks like this:
what the chargeback process looks like
The cardholder requests a chargeback through his bank. They usually have up to 120 days after purchase to dispute the charge, although some card schemes allow up to 365 days.
The issuer reviews the case, assigns a reason code, and initiates billing.
The card scheme receives the chargeback and forwards it to the acquirer.
The acquirer receives a chargeback and debits the funds from the merchant’s account How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks. The acquirer also charges the merchant a fee ranging from $5-$100.
The merchant will review the chargeback and provide a defense document if they decide to dispute it. They must defend the chargeback within 14-40 days (see specific time frames according to the scheme here). The acquirer passes the trader’s decision through the scheme to the issuer How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
The issuer reviews the defense document and decides to accept or reject it.
If the issuer accepts the defense, the acquirer will return the funds to the merchant.
If the publisher rejects the merchant’s defense, it can argue against it. This is called a second chargeback, which is usually denied.
If the issuer refuses the second chargeback, you can go through a third round, called arbitration. Arbitration is often not recommended because the fees are particularly high (up to $500 in addition to the amount in dispute).
For more information on the procedure and dispute process, please visit our documents page
Reasons for chargebacks
When the issuer approves a chargeback from the cardholder, it assigns a reason code. Each card scheme has a different set of reason codes, but they all fall into one of the following groups How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks:
The cardholder claims that he did not make or authorize the transaction How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
The goods did not correspond to the description or did not arrive on the expected delivery date. Or the cardholder has been notified that the payment has not been processed.
Some payment information was incorrect. This may include information such as amount, currency or account number How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
The payment could not be authorized or the authorization was refused How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
Read the full list of chargeback reason codes by card issuer.
How to prevent chargebacks
Billing can cost businesses both the purchase amount and other fees. Banks and card networks can also penalize you if your chargeback ratio (the percentage of your transactions charged back) is too high.
Preventing chargebacks is more important than preventing them. Even if you win the chargeback defense, it will still count toward your chargeback ratio How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
While you can’t completely avoid chargebacks, there are ways to reduce the amount. Here’s what to focus on:
Make returns easier
Refunds as quickly as possible when requested by the customer
Have a clear return policy
Include your email address and phone number on your website and emails so that the customer can easily contact you
Get the goods to the customer on time
Set a realistic delivery date. If there is a delay, inform the customer as soon as possible How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
Proactively refund customers if you cannot provide goods/services by the expected delivery date
Track your goods and track their delivery date. Ask the customer to sign for the package upon delivery for extra security How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
Avoid any misunderstanding
Make sure your bank account payment description is clear and accurate
Respond quickly to any customer inquiries
Notify your customers as soon as possible if a product is out of stock
Provide detailed product descriptions on your website
Use verification tools such as Address Verification Service (AVS), Card Security Codes (CVV) and 3D Secure 2
Make sure your risk system can identify customers who regularly file chargebacks and could be committing friendly fraud
Learn more about fighting payment fraud
How to dispute chargebacks
Once the chargeback has started, you will receive a Notice of Chargeback (NoC). From that point on, you can choose to resist the chargeback within 14-40 days (see the exact time frame for each card).
Start by reviewing the case and reason code to understand why you received a chargeback and whether it’s worth disputing How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
When is it worth challenging a settlement?
Controversy Don’t dispute
You think the transaction is legitimate You know the transaction is fraudulent
The transaction amount is large The transaction amount is low
Build a case with as much evidence as possible. Try to gather all your interactions with the customer to help disprove the chargeback claim How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
A chargeback occurs when a purchase is canceled and the consumer gets their money back due to a dispute with their card company. Chargeback scams are on the rise today, increasing by 20% year-on-year (Expert Market).
The settlements were originally intended to instill confidence in the security of debit and credit cards and provide consumers with a security layer of protection How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks. Chargebacks, both legitimate and fraudulent, can be initiated for many reasons. A consumer can dispute a purchase based on an invoice for various reasons How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks:
They don’t know the payment on their card
The customer never received their purchase or was charged incorrectly
They feel that the product or service they paid for did not live up to the promises
Their information has been stolen and is being used fraudulently
The merchant’s return policy is unclear and the customer is unsure how else to initiate a return
More than 30% of chargebacks are for purchases made with stolen credit card information. (Shift processing). Chargeback fraud has a drastic impact on the bottom line. A $1 fraud cost a U.S. retailer $3.36 in 2020, meaning high-volume merchants may suffer large losses if they are unable to prevent this fraud (LexisNexis) How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
6 Ways to Protect Your Business from Chargeback Fraud
6 Ways to Protect Your Business from Chargeback Fraud
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Chargeback fraud is on the rise
Businesses are concerned that chargebacks are increasing by 20% year-on-year. Mercator Advisory Group predicts that the volume of chargeback fraud will increase to 33 million in 2022.
Chargeback fraud is a serious problem for businesses and its impact should not be taken lightly. Not only can a business lose money on products and services sold, but chargebacks also come with fees that the merchant is responsible for How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks. Additionally, if a merchant is hit with too many chargebacks, they may even end up losing the ability to process card transactions altogether How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
Here are some of the most common types of chargeback fraud and ways you can protect your business and prevent lost revenue.
Different types of chargebacks
Return of Criminal Fraud Charges
This type of credit card fraud occurs when criminals make an unauthorized purchase using a consumer’s stolen credit card, stolen credit card number, or hacked account information. Fraud often comes to light much later when the actual cardholder checks the transaction statement and flags the transaction as illegitimate How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks. More than 1-10% of fraud occurs due to chargeback fraud (Shuftipro). Chargeback fraud can be avoided by looking for warning signs in your consumers’ behavior How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
For example, a difference in “ship to” and “bill” addresses and unusual purchasing behavior are red flags to watch out for. There are also organized retail rings that order large quantities of products for resale, ask for chargebacks and sell them for almost 100% profit (PaySimple). If necessary, you must verify orders with the actual cardholder to avoid chargeback fraud. You should also make sure that best security practices are followed when accepting credit card payments online How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
Settlement of merchant error
A merchant error chargeback occurs when a consumer does not receive what they paid for, or when a merchant mistakenly charges a consumer for an incorrect, duplicate, or unauthorized transaction. Other causes of this error include incorrect billing descriptions, transaction processing errors, inaccurate product descriptions, and unclear return policies How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
Research shows that merchant errors are responsible for 20-40% of chargebacks (Chargebacks911). You can take advantage of the merchant protection against chargebacks offered by your payment provider, giving you the opportunity to resolve a consumer’s complaint before they request a chargeback. You must also analyze the root cause of chargebacks and resolve issues to eliminate merchant errors and prevent future chargebacks and lost revenue How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
A friendly settlement of fraud
A friendly chargeback occurs when a consumer purchases a product or service, receives it from a merchant, but requests a chargeback. This is often due to a mismatch of expectations. Consumers can request a chargeback if the product is not as described, they don’t see the charge on their statement because the merchant used a different name, or if a family member made a purchase without the cardholder’s knowledge How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
Intentional charging to defraud consumers
A small number of consumers also indulge in fraudulent chargebacks to avoid paying for the goods and services they have purchased. This kind of fraud is difficult to detect and refute because the customers are legitimate and a legitimate transaction record is available as proof How to Raise Profits by Preventing the 3 Most Common Types of Chargebacks.
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