Chargebacks were initially created to help consumers protect themselves from fraud. The intent behind them was to both incentivize companies to put fraud prevention in place and give consumers more control as plastic forms of payment began to overtake cash. Unfortunately, ecommerce and the rise of card-not-present transactions made fraud easier all around, and chargebacks were not exempt from this problem.
Because chargeback fraud has become a widespread problem online, many companies have tightened their fraud controls and looked to payment providers for better options. The payment industry is in turn attempting to straddle the line between protecting consumers and businesses, so they have begun to issue changes to the chargeback process.
Some changes have been helpful to online companies, while others have made it more difficult to defend themselves against issues like friendly fraud. The best way to protect your business from these growing threats is to know your rights and responsibilities are when it comes to chargebacks. Though payment service providers, gateways, and acquirers often have their own rules around merchant expectations, there are some common steps you can take that are universal to all businesses.
Use Preventative Measures
Keeping fraud from occurring in the first place is always the best way to prevent chargebacks. No fraud prevention solution can eradicate all fraud, however. That means it’s especially important to choose the right one for your needs.
Look for fraud solutions that offer multiple verification tools and defends against several forms of fraud. You’ll also want to ensure that any customer data stored on your site is secure and protected. Require customer accounts to use strong passwords and consider two-factor authentication on unknown devices. Putting strong fraud protections in place immediately can help you keep chargeback costs low, gain support from your payment service providers, and fight unwarranted chargebacks in the future.
Organize Your Processes
When it comes to disputing a chargeback, you’ll need clean records. Having clear, easily accessible information on transactions will help you reduce friendly fraud. In addition, clean data can show any potential weaknesses in your fraud prevention that can later be strengthened.
You should also be able to respond quickly with complete information about any disputed order. Since many chargeback processes have very strict time requirements, an organized, prepared process will ensure that you can meet these timelines and avoid losing more money from inefficiencies.
Know Your Dispute Rights and Responsibilities
Do you know that Visa charges merchants a small fee for unacknowledged chargebacks? Do you know what your arbitration process is? Do you know what your risk threshold is before chargeback monitoring is needed?
Knowing what is required of you, how the entire process works, and what the terminology is can also help you avoid many fees and additional costs. Because there are a variety of payment methods – and each may have its own process for handling chargebacks – this may require some research. But that research will pay off by putting you in a better position to understand and protect yourself from fraudulent chargebacks.
Get More Information
The best place to find information on the chargeback process as well as any changes is usually at the source. Make sure to ask your acquirer for their specific requirements. Here are a few guides from some well-known payment service providers to get you started:
American Express Guides (you must log in to download the Complete Disputes Guide)