Any business that accepts payment cards understands the pain of chargebacks. From true fraud to friendly fraud (“I didn’t buy that”), chargeback cost merchants $40 billion every year. Chargebacks deplete your business of more than just money… they drain time, resources and goods and services.
Fortunately, there is a science to preventing chargebacks. We’ve laid out the relevant information about chargebacks as well as what to do to secure your business against the chargeback problem.
Did you know?
- When it comes to preventing chargebacks, the number one driver of avoidable chargebacks is the lack of communication between card Issuers and merchants. With disputes, 86 out of 100 cardholders will bypass the merchant and approach the Issuer directly to initiate the dispute. This leaves merchants with no defense – they have no recourse until the actual chargeback is filed, forcing time and resource expenses. Transactions suspected as fraud and cardholder initiated disputes can snowball into chargebacks where they could be prevented by Issuer-merchant collaboration.
What to Do
- Tools like post-billing chargeback alerts facilitate essential cooperation by enabling the Issuer to relay dispute data to merchants so they can resolve the issue immediately by processing a refund or issuing a credit. The chargeback is avoided and the merchant can also stop the fraudulent shipment of orders before they become a loss.
Not only do post-billing chargeback alerts help stop chargebacks, they aid the continued completion of legitimate sales as well. While the knee-jerk reaction for merchants with an elevated chargeback problem is to beef up front-end fraud measures, chargeback alerts create the necessary balance to stop fraud while allowing good sales to flow through uninterrupted.
Did You Know?
- If you break it down, it’s not just the losses associated with the actual fraud that cost merchants. On average, merchants incur $3.08 in additional costs for each dollar of fraud. Managing the chargeback process accounts for some of that, but there are other costs, too. Using chargeback prevention services that are not accurate is expensive. These services create dispute signals that never turn into actual chargebacks, resulting in additional costs due to overstated chargeback volume, extra manual review and the cost of unnecessary refunding. Some merchants are paying up to 50% more than they should due to false positives.
What to Do
- The only thing worse than paying for chargebacks is paying for false positives. Solutions like Verifi’s Cardholder Dispute Resolution Network™ (CDRN) can stop up to 40% of chargebacks with 100% accuracy, with Verifi’s zero defect guarantee if a CDRN case is successfully resolved but later filed as a chargeback, you don’t pay. This eliminates costs associated with manual reviews (5-90% of manual reviews prove to be unnecessary) so merchants can re-focus on core business priorities.
Did you know?
- A balanced yet comprehensive approach to fraud and chargeback management is necessary but can be elusive; many solutions are offered as “one size fits all,” severely limiting merchants’ ability to tailor chargeback prevention to their business – ultimately hurting sales. Static solutions that cannot keep up with the evolving CNP landscape typically end up costing merchants in profits lost to chargebacks and sales lost to overly-aggressive fraud prevention tools.
What to Do
It’s advised that merchants combine pre-chargeback notifications on the back-end with front-end fraud prevention tools to get a unified view into the entire transaction lifecycle. Front-end fraud prevention tools to consider include:
- Digital fingerprinting – IP address sourced geo-location and proxy-piercing information, provides in depth, non-invasive insight into the risks involved with accepting transactions from specific IP addresses.
- 3-D Secure – 3-D Secure or 3 Domain Secure is a cardholder authentication protocol for eCommerce transactions or card- not-present (CNP) purchases and covers 60% of US shoppers and 90% cardholders internationally and helps eliminate chargebacks. It helps prevent “I don’t recognize” or I didn’t do it” chargeback disputes from occurring.
- Biometrics – This technology uses biometric features, such as facial features, voice verification or heart rate to compare to reference data in order to confirm a person’s identity.
Chargebacks are not going anywhere; however, with the right tools and operational processes in place, merchants can eliminate false positives, increase efficiency and dramatically reduce true chargeback cost. For more information on how to improve your risk prevention effectively and without breaking the bank, read our white paper on how to prevent chargebacks.