In a world where the measure of a merchant’s worthiness for credit card processing is based on the rate at which transactions are returned by the issuing banks, it is worth a refresher on ways to mitigate chargebacks.
Assuming all chargebacks that occur are legitimate, there are ways to reduce their rate of occurrence.
Don’t set up your fraud rules and then just walk away. In this day and age the rules you just set up may well be obsolete.
Firstly, you must be clear to the consumer what it is they are signing up to purchase. That is, if you are offering a recurring billing product where the consumer continues to be billed until they cancel with you, then tell them that. If your product is good, they will continue to buy it; if it is not a good product, then your shrinking memberships should motivate you to improve it.
Secondly, I encourage you to use the tools that are available from the card associations to authenticate that consumer. In a card-not-present purchase, you will need to gather additional information about the consumer to ensure that the person using this card is authorized to do so. Address verifications service (AVS) and CVV tools assist in matching information on the card and the consumer’s address to the card holder’s address. This reduces the threat that the card is being used by an individual who does not actually have the card in their possession or does not know the address of the cardholder. If you want to ensure that the transaction cannot be returned, then use Verisign by Visa or SecureCode from MasterCard, both of which are fraught with issues for the consumer who is asked to use those methods to authenticate. However, if a consumer is fortunate enough for the transaction process to work, the merchant will not have to worry about the transaction returning to them! Generally, in total you will have a lot fewer transactions about which to worry.
Thirdly, ensure you have a stellar customer service platform. Allow that consumer who is actually taking the effort to reach out to you instead of their bank, to reach you. That means providing a 24x7 customer service line. If you sell internationally, be sure to publish not only your toll-free number but your local number as well. Have an easy-to-navigate web page where the consumer can send you a message or cancel directly themselves. If the consumer asks for a refund and the request is reasonable, give it. By catering to the consumers who actually attempt to contact you, you will reduce your chargebacks.
With regard to the chargebacks that are less legitimate, you should consider the following activities.
Look at your data regularly. Don’t set up your fraud rules and then just walk away. In this day and age the rules you just set up may well be obsolete. The fraudsters enjoy the challenge of circumventing your rules so keep them busy and unsuccessful by making changes regularly. Furthermore, your data will tell you things about your products you may have not known. By looking at your sales by source, by location, by sex, by IP, etc you will see patterns of negative sales and fraudulent activity that you can stop. This should be a dedicated activity in your company.
Finally, partner with a gateway that has the experience and knowledge to build routines which look for fraud or suspicious activity. This gateway should have routines entrenched which can be fine-tuned for your business by altering parameters easily.
They should have a negative database to eliminate recurring fraud. Since the card associations will not allow the merchant to know about their consumers’ past behaviors, this database will eliminate known offenders.
Good luck out there. It’s a consumers’ world!
