How SMART Businesses Are Preventing Chargeback Fraud This Holiday Season
FACT: “Chargeback volumes can increase by as much as 50% during the holiday season.“
source: International Finance Magazine
Its the Christmas holiday shopping season and business merchants all around the world are rejoicing with their significant yearly increase in sales. BUT BEWARE! While business owners are busy dealing with an influx of new customers, increased sales and more revenue during the busy buying month of December – this increased earning potential for merchants also increases the risk of costly, unwanted chargebacks and online payment fraud.
CHARGEBACKS ARE AN INCREASING CAUSE OF LOST REVENUE FOR YOUR BUSINESS! 86% OF ALL CHARGEBACKS ARE FRAUD.
What is a Chargeback and How Does The Chargeback Process Work?
In order to understand how to mitigate and reduce chargeback fraud – it is important to understand what a chargeback is and how it is actually affecting your business’s revenue. Below is a basic overview of how a chargeback claim is processed:
- The cardholder or purchaser files a chargeback for whatever reason.
- The dissatisfied customer contacts the bank (issuer) and asks for a refund or cancellation on the purchase.
- The issuer/bank then reviews the chargeback claim – with a biased approach on behalf of their customer.
- Each chargeback is accompanied by a reason code. These reason codes offer an explanation as to why the consumer is disputing the transaction (for example, “goods or services not as described”). Each code has its own set of rules (filing time limits, necessary documentation, etc.). The issuer will check the cardholder’s chargeback claim, making sure all the regulations have been addressed.
- The issuer/bank takes action on behalf of the person initiating the claim.
- If the cardholder does have a valid claim, the funds are then removed from the merchant’s bank account automatically and credited to the cardholder’s account.
- Notification of the chargeback is then sent to the merchant’s bank and s will also be charged to the merchant.
Different Types Of Chargeback Fraud Hurting Your Business
Chargeback fraudsters typically use multiple different methods in order to deceive merchants at the check-out (both online and offline). Below are the main types of payment fraud you need to watch out for this upcoming Christmas Season. The most prevalent types of card fraud are:
- First-party fraud, which occurs when a fraudster purports to be a legitimate cardholder or a
legitimate cardholder intentionally decides not to pay off a credit card balance, leaving the
card issuer with the debt.
- CNP fraud, which involves the unauthorized use of a credit or debit card number, the
security code printed on the card (if required by the merchant), and the cardholder’s address
to purchase products or services in a setting in which the customer and the merchant are not
interacting face-to-face, such as an e-commerce transaction or a transaction that takes place
over the telephone.
- Counterfeit fraud, which occurs when a fake card is created using compromised details
obtained from the magnetic stripe or electronic chip in a legitimate card.Lost and stolen card fraud, which includes cards that are reported as lost or stolen by the
original cardholder.Mail and non-receipt fraud, which involves intercepting legitimate cards while they are in
transit from the issuer to the cardholder.
- ID theft, which occurs when a fraudulently obtained card or card details are used to open or
take over an account in the name of a legitimate user.
Managing Chargebacks And Preventing Different Types of Credit Card Fraud
Avoid DIY Chargeback Management: The Costly Risks Associated with In-House Fraud Management And Prevention Systems
In the past, in-house FDP (Fraud Detection and Prevention) solutions might have been an adequate method to keep payment fraud at acceptable levels for your business. However, fraudsters now operate globally and with ever-changing sophisticated techniques, which must be dealt with by means of sophisticated, real-time fraud screening/detection solutions.
Transaction data helps you identify the main reasons for excessive chargebacks so you can put in place a comprehensive management strategy to reduce this problem. However, when merchants do put in the extra effort (and money) to create their own manual chargeback reporting system for their business, the information collected, accuracy of data and speed of responding to every chargeback claim is severely limited.
Utilizing Automated and Accurate Chargeback Management Software to Help Reduce Chargebacks and Increase Win-Rates Against Claims
With the technological sophistication of fraudsters and the multitude of different variables to analyze with all Credit Card payments (Card Type, Merchant Account, Country, City and State, Card Type, BIN Number, Reason Code, Affiliate ID, etc), it is virtually impossible for any modern day business to setup an efficient and effective Chargeback Fraud Prevention/Detection System to reduce chargebacks. BUT that does not mean retailers and business merchants need to accept chargebacks as just another cost of doing business – with the use of Accurate and Automated Chargeback Management Technology.
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