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Minimizing chargeback fraud losses

Every business that accepts payments online runs the risk of suffering from chargeback fraud. Whether you provide a service or sell products, the customers can fraudulently reverse the payments, imposing chargeback processing fees and potentially turning your business into a high-risk one. This means you pay higher fees for every payment and unless you reduce the customer chargeback ratio, your merchant account can be blacklisted by Visa and Mastercard. Needless to say, such an outcome should be prevented at all costs.

How to reduce credit card fraud chargeback losses then? Through a combination of preventive measures, customer support, and using real-time chargeback solutions. Read on to discover the ways to prevent merchant chargeback losses and ensure your business remains a low-risk one, saving up to 70% on processing costs.

Why is chargeback fraud so dangerous?

Because it’s easy to commit, hard to detect, and almost impossible to reverse if you don’t have specialized chargeback solutions in place.

All it takes for a fraudster to steal your money with a friendly chargeback fraud scheme is to file a claim with their issuing banks. The bank always assumes the customer is right, so they reverse the payment, take the money from your account and put it into the customer’s one. However, this is much easier said than done. The claim should be registered, approved and forwarded to a payment processor to start a chargeback dispute. The payment processor then takes the chargeback dispute fee from your merchant account, which is non-refundable.

Only after all of this happens, you get informed of a chargeback and have some limited time to provide proof of actually delivering the service or product in question and reversing the chargeback claim. Such proofs can be delivery and acceptance forms with customer’s signatures obtained from the last-mile delivery company or any other form of documentation proving the services were delivered in full.

Let me ask you frankly — do you collect these documents? Most likely – no. Just as most of the merchants. So, what do we do to minimize credit card fraud chargeback losses then?

3D Secure to the rescue

Back in 2019, 6 major credit card payment networks launched an updated version of the 3D Secure protocol. The 3DS 2.0 or EMV means that a transaction must be three-domain-secure so that a customer must enter a credit card number, a CVV code, and an OTP —  one-time password sent to the phone associated with the card. Challenger banks might replace the OTP with the need to log into their apps, but the principle remains the same.

Such an approach ensures there are records of the transaction in several systems, and if there is automated logging in place, you have the needed proof of the transaction validity. This helps negate chargeback claims like:

  • I did not do that at all
  • Yes, I did, but by a mistake
  • No, this was not done with my consent, etc.

Implementing 3DS 2.0 as a part of your payment processing helps a ton when dealing with legitimate claims. The key benefit here is the chargeback liability shift, as the card-issuing banks have to deal with chargeback claims now, not the merchants.

But what about the cases of intended chargeback fraud? The customer can then declare the service was not delivered in full, the product was not what he/she was expecting, it was inoperational — or they never received it at all.

Customer support and feedback processing

In such cases, being proactive means being secure. Ensure your website content leaves no place for ambiguity and each product/service description tells exactly what the customer will receive. Have a clear refund policy in place and ensure the customers actually READ it before making a purchase. 

There are tools to force them to at least open the document before they can finalize the deal. Even if they just scrolled it down to tick the box, you will be able to prove they agreed to the terms, so their claims are ungrounded.

Also, walk an extra mile to ensure your customers get all the support they might need during their user journey and can easily get value from the first time they use your products/services. Being customer-oriented not only helps to seal the deal — more importantly, it ensures there are fewer chargeback cases down the track. 

Pay attention to the feedback your customers leave. Send them surveys and ask questions on all aspects of their user experience. Positive feedback can be displayed on the site, while negative shows you what can further be improved to get better conversion rates.

But what about credit card fraud chargeback prevention? 

Minimizing chargeback fraud losses through technology

Invest in risk mitigation and chargeback prevention tools, like Covery. This investment will pay for itself very quickly, in many ways:

  1. If a customer provides some identifiers (IP address, device hardware and software version markers, email name\domain) that were previously used in fraudulent activity, the system can raise alerts at once. Transactions from such a customer can be subject to additional checks or be rejected straight away to prevent you from potential chargeback fraud in the future.
  2. If a customer files a chargeback claim with a bank that uses chargeback prevention features from Covery, through Ethoca or VMPI integrations — you get an alert allowing you to refund the disputed sum yourself and settle the claim before it becomes a dispute. This way, you avoid raising your chargeback ratio and prevent becoming a high-risk merchant, with all the penalties this ensues.
  3. Covery keeps track of a huge number of details for every transaction, so if you do receive a chargeback claim, you have all the data needed to defend your case, and it’s available at your fingertips.

Thus said, Covery can help defend against legitimate chargebacks and prevent fraudulent ones by blocking initial transactions. As a result of deploying Covery, the merchant chargeback ratio can be reduced by up to 70%, allowing you to decrease the money losses on chargebacks, as well as reducing payment processing fees and helping your business become a low-risk merchant. Just a cherry on top of the cake — this helps increase your turnover nearly twice, so you can achieve more and grow your business faster!

Should you like to know more about how Covery delivers value to your business — contact us!