Share, , Google Plus, Pinterest,

Posted in:

Watch out for chargebacks, it’s fraud at its most insidious

Often known as ‘cyber shoplifting’, chargebacks can cost your company a lot of money if you’re not aware. PayGate explains.[

According to a 2018 US study from Experian, eCommerce fraud grew 30% in 2017 and research undertaken by Radial found that merchants can lose as much as 23% of their operational budgets to fraud and chargeback management.

The reality is that attempted credit card fraud is an inevitability. But reputable payment service providers have the latest in sophisticated fraud detection and prevention systems in place to protect their clients against fraud from stolen credit cards. As long as you’ve chosen a good payments partner, you will have many added layers of protection for peace of mind. 

Chargeback fraud is a different kind of threat where the customer makes an online purchase with their own credit card, and then requests a refund from their bank. It’s often called ‘friendly’ fraud because the shopper will make claims that seem believable and honest. But in actuality, if this type of fraud was occurring in a brick-and-mortar shop, it would be called theft or shoplifting. Research by Juniper revealed that friendly fraud accounts for around 70% of chargeback fraud.

Regardless of the intent, chargebacks costs your business money.

The anatomy of a chargeback

When a customer initiates a chargeback, the bank launches an investigation and, if they feel the claim is valid, returns the funds to the consumer while removing those funds from your account, along with an extra fee.

Customers are allowed to claim a chargeback if they didn’t authorise a transaction from a merchant – if their card or identity was stolen – if the product didn’t match what they were promised, is defective, or was never delivered. But increasingly, shoppers claim chargebacks in an attempt to get their shopping for free because they don’t want to pay for it, or no longer want the item. Unless the card was really stolen, the proper course of action for customers is to speak to the shop owner about a refund for the item. 

While the original purpose of the chargeback was to protect the consumer from a dishonest merchant, there has been a significant rise in consumers behaving dishonestly instead.

The impact of a chargeback

Essentially, a chargeback boils down to you having to pay for the same item twice. Regardless of the outcome, the shopper doesn’t have to return the item.

Alongside the financial costs of this fraud, is the lengthy and admin intensive dispute process. It can take a lot of time to manage and consumers have up to 120 days to claim a chargeback. So, you may have to go back into your records for the past four months, find the evidence and then defend your case. It can be time-consuming preparing a response and hunting for all the paperwork. Now, imagine the impact on your business if you have to do this for several chargebacks a month?

Your chargeback protection plan

No online retailer is immune to chargeback fraud. In fact, shops that sell big-ticket items that can easily be resold, such as electronics, need to be particularly aware of the risks. You need to put protection plans in place that will help you stay ahead of the con artists and on top of your time and budget.

Here are seven ways you can protect against and prevent this type of fraud:

  1. Detailed product descriptions – ensure that your product descriptions are incredibly clear and easy to understand so consumers don’t have any confusion about what you are selling. This includes a detailed description of the product, its size (when necessary), and really clear photographs taken from multiple angles.
  2. A clear payment system and description – ensure that your shop name and any other identifying details that appear on your customer’s credit card statement, are really clear and easy to understand. This will reflect on their bank statement so if it isn’t obvious who the payment is for, the customer may not recognise it and panic, calling the bank and initiating a chargeback.
  3. Have clearly explained return and dispute policies – put these policies in easy-to-find places, guide customers to them when they complete a purchase, and offer prompt and attentive customer service to anyone concerned about a purchase. This will encourage your customers to engage with you rather than the bank and then you can handle a refund process that’s far better for your bottom line.
  4. Record all transaction details – keep accurate customer records that include transaction dates, amounts and authorisation information. Ensure you can easily access it in the event of a chargeback dispute. You will have to do so within seven days, so make sure you have everything close to hand just in case. If you have signed documentation such as receipts or contracts that’s also ideal.
  5. Pay attention to suspicious details – is the credit card security code incorrect? Do the billing and shipping addresses match? If you catch these at the start, you can make enquiries to ensure that the customer is legitimate.
  6. Ensure shipping is seamless – keep your customers updated throughout the shipping process and use online tracking and delivery information where possible. Get signatures to confirm delivery, especially on really expensive or popular electronic items.
  7. Encourage your shoppers to use payment options such as Instant EFT – these payment options mitigate the threat of chargebacks, because shoppers pay straight out of their existing bank accounts, rather than using credit cards that come with chargebacks.

Speak to your payments partner when you become aware of a chargeback claim. Depending on which product option you’ve bought with them, they’ll be able to advise if they’re able to manage it on your behalf, or whether you would need to deal with the bank directly.

Fortune favours the prepared

Fighting chargeback claims is a tough and time-consuming business so your best bet is to avoid it as much as you can. Follow the steps above to minimise your risk and always be vigilant, after all, it’s your business on the line.


PayGate is a proud Partner of the NSBC.