Ecommerce fraud: Chargebacks

Credit card chargebacks are a costly reality for online merchants. A chargeback is a transaction disputed by the cardholder or issuer. There are many reasons for chargebacks, but the most common are returned merchandise, terminated services, disputes, errors, or fraud. If the credit card issuer considers the dispute valid, the merchant is required to refund the amount of the transaction plus a chargeback fee to the payment processor.

The exposure your company has to ecommerce fraud depends on your business policies, operational practices, fraud prevention and detection tools, security controls, and the type of goods or services you provide. All members of your business should have an understanding of the risks associated with all ecommerce transactions and should be knowledgeable of risk management.

Ecommerce Chargeback Red Flags

• Bulk orders with a higher-than-average dollar value are worth another look. Fraudsters have a short amount of time in which to use a stolen card and they want to buy as much as they can, as quickly as they can.
• Multiple orders from one customer in a short time frame may suggest unauthorized card use. By limiting the number of transactions per hour, day, or week from a specific customer, you may reduce risk of fraud.
• Different delivery and billing addresses are often valid but warrant further analysis to ensure card authorization. The AVS (Address Verification Service) system indicates if there is a full, partial or no match response during address verification by comparing an address in the card issuer’s database.
• A new customer demanding overnight or rush delivery for big-ticket items requires additional confirmation to ensure validity of card use. Fraudsters want the fraudulently purchased items in their possession before the cardholder realizes something is amiss – so they often pay extra for overnight shipping.
• Purchases made with numerous attempts on the credit card number or expiration date may signify that the card is not on hand which can be an indication of fraudulent activity.

Ecommerce Chargeback Best Practices

• Properly evaluate new customers ordering one item that has a significant dollar value.
• By maintaining a record of problematic customers, you can identify high-risk transactions, block specific card numbers and ban future purchases.
• Potentially avoid chargebacks by simply getting to know your customers. For example, record the customer’s telephone number, then call back to verify the order.
• Confirm your customer service phone number is printed on the receipt. This makes it easier for customers to resolve disputes by phone rather than through the chargeback process.
• Card brands have the CVV2/CVC2 security feature printed on the back of their cards, which allows you to verify as an additional security check.
• To avoid canceled recurring transaction chargebacks you should take immediate action when a customer asks to cancel a recurring transaction.
• To prevent credit-not-processed chargebacks, quickly process refunds to your customers. Your customer should always be made aware of your cancellation or refund policy. Be sure to have your refund/cancellation policy clearly stated on the checkout page.