The coronavirus pandemic has given a boost to e-commerce. More consumers started buying activities on the online platform than ever before. The paradigm shift of consumer behavior not only made the sales roar. But also saw a rise in friendly and criminal fraud. It led to an increased number of chargeback frauds for merchants.
Mercator Advisory Group forecasts that by 2022, out of sixty-six billion transactions, there may be close to thirty-three million disputes. It will be from consumer disputes, processing errors, authorization failures, and fraud. Every business can become a victim anytime that might lead to a drop in revenues.
An online scam chargeback company can provide you with solutions and advice to deal with chargeback fraud. Taking professional help from these companies, merchants may avoid the following:
- Losing the transaction amounts.
- Savings from fines and penalties.
What Kind of Fraud Leads to Chargebacks?
To prevent a chargeback fraud is not easy as it is hard to detect the reason for the fraud that led to chargeback. The solution is in segmenting and identifying the fraud type that led to chargeback. Merchant can see:
- Increase in Revenue.
- Providing better operation management.
- Assistance in mitigating challenges.
Let us look in detail at the types of frauds that result in a chargeback:
- Criminal Fraud: The definition of criminal fraud is when bad actors steal a credit card number to buy goods and services fraudulently. Merchants who wish to prevent chargeback pre-authorization would like to see a drop in criminal fraud.
- Friendly Fraud or Accidental Fraud: It is the fraud that occurs when a customer purchases something legitimately, then refuses to recognize the payments on their bank statement. Not every instance of friendly fraud can be accidental.
The consumer commits friendly fraud to keep the product in their possession without paying a penny. Or maybe to abuse the policies of the company. If a business can handle pre-authorization criminal fraud, it becomes easy to address chargeback after authorization that brings down friendly fraud.
- Legitimate Disputes: It is not under the category of fraud that results in a chargeback. Instead, a legitimate dispute happens when the merchant fails to deliver goods or services to the customer as promised.
In such instances, a merchant commits errors in shipping or processing the order or misplaces the order. The customer does not receive goods or services that force them to raise and dispute and opt for chargebacks.
Understanding the Process of Chargeback and Dispute
The chargeback and dispute process are usually instant for a few customers. But for business, it is an expensive and lengthy process. The chargeback process has a seven-step cycle that requires anywhere between a month to three months to complete.
- A customer has various reasons to refuse the charge on the statement of the credit card. He can contact the issuing bank to raise a dispute on the transaction.
- The issuing bank of the customer evaluates the dispute. They have the right to deny the claim. But in all probability, they remain at the side of the customer.
- The issuing bank debits the merchant’s business account with the transaction amount and extra penalty fees. The issuing bank satisfies the customer by way of refunding the amount.
- The issuing bank takes the chargeback information and passes it to the merchant’s acquiring bank.
- The acquiring bank or merchant reviews the information and either solves the problem or informs the business.
- Once the business receives the chargeback details from the acquiring bank, they can either approve the chargeback or dispute in return. The merchant would have to produce solid evidence to prove that the customer was involved in a legitimate purchase. Providing proofs may not be a cakewalk if the merchant lacks complete information about the fraud type that led to chargeback or dispute.
- If the acquiring bank receives the proof from the merchant, they raise a chargeback dispute to the customer’s issuing bank. If the issuing bank is satisfied with the transaction proofs, they favor the merchant side and give the transaction amount in the business account.
For instance, the issuing bank post receiving evidence still favors the customer, the merchant should pursue arbitration. In some situations, the issuing bank can file one more chargeback if they receive further details from the customer about the dispute.
Ways to Prevent Chargeback Fraud
To prevent a chargeback is not a one-time job. There are many catch points in a chargeback that is traceable for the business to take appropriate action. It will help merchants to limit chances of chargeback, and the merchant may not face losses either on products or fees.
- Blocking Criminal Fraud – Merchants can block illegitimate transactions pre-authorization by applying a fraud protection solution that connects identity trust indicators such as device IDs, shipping addresses, and email addresses. It helps in the verification of customers’ identity digitally.
The merchants also have the option to integrate trust-related signals with the latest technology of Artificial Intelligence. Also, automation of approval and denial is possible with unsupervised or supervised machine learning.
- Deflecting and Intercepting Friendly Fraud Cases – The business can avoid friendly fraud by adopting a chargeback and dispute management solution. The solution will provide notification once the customer raises disputes. Having the dispute information makes the business either initiate a refund or provide purchase information to the consumer.
The business must make arrangements to provide details to the issuing bank about the customer’s transaction, that he is denying recognizing in the bank statement. A dispute management solution provides the business with transaction details and the reason for the chargeback. It helps in the identification of transactions whether it was legitimate or not.
- Victory Over Chargeback Claim – To be victorious a business must have two things:
- Complete details of every customer transaction.
- A professional who can give them valuable advice about the dispute and fraud.
- Assessment of Business Policies to Reduce Legitimate Disputes – To reduce cases of legitimate disputes, the business must assess the following:
- Return and refund policies.
- Customer service protocols.
Merchants who want to know the customer experience must initiate an order, try the return and refund process, or contact the customer care department. Performing a mock every day gives the business ideas for improvement and thus helps in limiting legitimate disputes.
Reduce Disputes Helps in Better Financial Management
A business is built on savings and deploying the saved amount for a productive cause. But the menace of chargeback fraud can be a roadblock. Every business is required to take all the steps and actions to prevent any fraud. It has to be a win-win situation for both the customer as well as the merchant.
A merchant needs to have a payment system that protects the customer’s interest. It will help to reduce cases of chargeback. At the same time, a merchant must ensure the delivery of goods and services as promised to the customer. A clear refund and return policy are a must to handle situations of credit card chargeback.
Data plays an essential role in having all the details of the transaction. It must be stored in a proper way to use when any dispute about the transaction takes birth. Many times, a merchant ends up on the winning side if they prove the transaction to be legitimate.