How do Chargeback Scams happen and how do you fight them?

Digital transformation of commerce to e-commerce has made a significant difference for companies all around the globe. From no longer being restricted by their location and being able to reach new customers worldwide to businesses growing more than they thought it was possible, the change digitalization brought is unbelievable. Some business owners finally got the chance to open their business and start offering their products to customers as before they didn’t have enough funds to open physical shops.

For others, it was a difference between permanently closing their doors and staying open and reaching their customers when the pandemic started. Around 70% of buyers compare products online before making a purchase, which means having an online presence is no longer an option but a necessity.

How do Chargeback Scams happen and how do you fight them?

But, this rapidly increasing growth of commerce business also brought some downsides with the benefits. With it also came a growing number of businesses fraudsters can exploit for their financial gain. They will always find a way to turn the tables around and make the most considerable profit for them. According to the SEON, they do it through chargeback fraud when it comes to the commerce business.

What is chargeback fraud?

One of the most common fraud types affecting commerce businesses is called chargeback fraud. It happens when a customer contacts their card provider to dispute a transaction, which then results in reversal of payment for the merchant. According to CW44 News local research, there was a 23% increase in chargeback requests in the first weeks of the pandemic, and the number keeps growing. Chargeback can be really damaging for the merchants as they lose the product and the revenue from the sale, but they also need to pay a chargeback fee. Receiving many chargebacks can even lead to banks terminating merchants’ accounts due to high risk. Businesses should do everything in their power to prevent chargebacks from happening to avoid the financial and reputational damage that occurs due to chargeback.

Why does chargeback happen?

Chargeback requests can happen because of various reasons, and not all of them are fraudulent:

  • Item was delayed, or it wasn’t delivered.
  • The customer didn’t understand the merchant’s policy.
  • The product wasn’t what the customer expected (usually due to lack of description and pictures on the website)
  • The transaction wasn’t authorized (Card was either stolen and used by fraudsters or was it used by the person known to the card owner like their child or sibling but without their consent)
  • Customer didn’t recognize the transaction when they checked their credit card statement (this could be a merchants error as their descriptor is not clear, or maybe the customer forgot about the purchase)

Some of these reasons are easily preventable, but they still happen more than they should. It is time for the merchants to do everything in their power to prevent chargebacks from happening instead of just reacting to them.

How can you fight against chargebacks?

Unfortunately, chargebacks and chargeback fraud will never disappear, but you can minimize the risk of them affecting your business by using the following advice below.

Be as clear, accurate, and descriptive as you can. By being clear, precise, and descriptive, you can significantly reduce the number of chargeback requests affecting your business. For example, by being as descriptive as possible when describing your products, you will ensure the customers know what you are offering and avoid receiving chargeback requests due to the product not being what customers expected. The same applies to your merchant descriptor. If it is clear and accurate, you will reduce the risk of customers not recognizing the transactions on their card statement.

Ask for a CVV number during every transaction. Some businesses do not ask for it if the customer has an account and has already purchased something, but that doesn’t mean they aren’t a victim of account takeover or identity theft. It takes just a few seconds, and it can make a difference in the number of chargebacks your business needs to deal with.

Utilize fraud prevention tools. From antivirus and firewall to data enrichment, device fingerprinting, or even email lookup, fraud prevention tools can help you prevent fraud before it even happens.

Request proof of delivery from the shipping company. This way, you can put an end to claims the item wasn’t delivered as you will be able to prove the customer has accepted it.


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