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Credit Card Chargeback Fraud And Retail

Chargebacks are bad for business — really bad. Unlike normal refunds that you initiate on behalf of unsatisfied customers, chargebacks occur when customers go directly through their credit card companies to reverse charges. 

Either way, you've lost a sale — but with chargebacks, you lose so much more:

  • Eroded confidence between you and that customer. 
  • Damaged trust between you and your payment processor (and perhaps the customer's credit card issuer as well).
  • Chargeback penalties, ranging anywhere from $20 to $100.
  • Time and money spent disputing each chargeback.  

Even if you manage to reduce your chargeback rate to 1 percent, you’ll still end up spending weeks (maybe even months) going back and forth with banks, processors and angry customers as you try to settle the issue.

Thus, your goal should be to reduce chargebacks as much as possible — ideally to 0 percent.

Though how do you get there?

Reducing Chargebacks within Your Business

An obvious starting point is to make your refund policy transparent and hassle-free. When customers are dissatisfied with one of your products or services, make it easier for them to reverse the charge without going over your head.

Obviously, the number of refunds may go up since there'll always be those who try to take advantage of you. Nevertheless, the good will that your bold refund policy generates could attract more customers in the long run — especially loyal customers.

However, this approach is only the starting point.

The majority of chargebacks arise from unauthorized purchases — i.e. fraudulent transactions made without the cardholder's knowledge. Once a customer's financial data has been breached, he/she will immediately contact the bank in order to begin the chargeback process.

This is a serious issue, with global fraudulent losses exceeding $16 billion — a statistic that doesn't even include all the fees, penalties, interest or investments of time required to reverse these fraudulent losses.

The problem is particularly bad with card-not-present transactions made online or via telephone. Unfortunately, it’ll only get worse as EMVs continue to push more criminals out of physical retail stores and into the online world.

What steps can you take to protect yourself?

1. Invest in Secure Payment Processing

The easiest starting point is to sign up with a PCI-compliant payment processor that offers advanced security features like tokenization and point-to-point encryption (P2PE). Tools like these help to protect how financial data is stored and transferred.

2. Employ Better User Authentication

Require more user information during the checkout process. In addition to names and billing addresses, you should also ask for the CVV code on the back of each card. Asking for these extra details might increase cart abandonment rates, but they’ll also help to reduce the number of chargebacks and associated penalties.

3. Use Better Fraud Management Tools

If checkout abandonment rates are a problem, you can always invest in better fraud management tools. Filters that isolate IP addresses, high-risk countries, and compromised cards all work on the backend, without disrupting the shopping experience for legitimate users.

For a list of some of our more popular fraud management filters, click here.

Is Any Chargeback Prevention Strategy Foolproof?

It’s very difficult to stop a truly determined criminal, and it may never be possible to eliminate chargeback fraud 100 percent. 

However, by implementing the suggestions above, you can make your business a far less attractive target for would-be thieves. This is especially true if your competitors continue to use outdated fraud prevention measures.

For help reducing chargebacks within your business, contact our payment security team today.

Welcome to the BluePay Blog!

Whether you're a small business, an enterprise corporation, a financial institution, or a software partner, we have created a series of blog posts to help you and your customers, learn more about the complex nature of payments. Take a look to learn how payments can help to simplify your business operation, and may even help to grow your revenue.

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