Avoiding the Dreaded Chargeback

A chargeback is a request by a credit card holder to reverse charges placed on her credit card.

This is a huge issue in getting an inexpensive merchant account. You will pay a penalty fee for the charge, and if you get too many, your account will be suspended.

This is by far the most common reason for a merchant account to be terminated. And once you've had a merchant account terminated, you will find it difficult to get another one.

I can't stress this enough: You will find it very difficult to find or hold on to an affordable merchant account if you have an excessive number of chargebacks.

While it is an issue for every merchant, it is a special concern for merchants that take credit card orders online, since there is no signature and no imprint made.

This makes it much easier to use bogus credit card numbers to perpetrate ecommerce fraud.

Friendly(?)

In addition to fraud perpetrated by thieves, there is also so-called "friendly fraud" which takes the form of customers who claim they didn't purchase from you--even when they know they did.

(Just so you're aware, there are often much more colorful terms applied to this act, but "friendly fraud" will do for our purposes. ;-)

Unfortunately, you, the merchant, ultimately must bear the brunt of these actions ...

... You are responsible for reimbursing the purchase price to the consumer.
... You also incur a fee for the chargeback.
... And, if it occurs too often, you could have your merchant account revoked. (stop me when this starts to sound unfair!)


But not all such actions by customers are malicious in nature.

Many times card holders dispute a charge for one of the 3D's:

• Didn't get it
• Different than described
• Defective

Unlike fraud, which can be tough to detect and deter, this rests squarely on the shoulders of you, the merchant, and the services you rely on.

Countermeasures

Let's start with honest chargebacks.

There are 3 things that you must make clear to your customers which can drastically reduce your chargeback rate.

1. Make sure the product images are crisp, clear, and large enough to see.
2. Make sure the product specifications are clear. List all appropriate information. Then list more.
3. Make sure that product price is clear. I mean crystal clear. Both before and after taxes. Each charge on an order MUST be clear.

Along with a customer service number prominently displayed (ok, so that's 4), these 3 (or 4) steps will do you wonders.

And when it comes to dropped orders and defective merchandise, keep a close eye on the percentages.

Depending on volume, anything over 2-3% and it may be time to start shopping for a new fulfillment house.

Fraud

It happens and it happens a lot. But can you do anything to counteract it?

The best thing you can do to reduce fraud-related charges (and something an alarming number of merchants don't do) is thoroughly check the reputation, competence, and track record of any payment processing company you are considering.

Many services simply do not address fraud and security issues adequately.

Also remember that any online merchant can be a victim of fraud - not just those selling high priced items.

To avoid chargebacks, all merchants must endeavor to AUTHENTICATE credit card orders.

For most merchants, I recommend using an address verification service. Many providers bundle address verification and fraud screening software with their service.



Address verification is usually enough. However, high value items will require greater efforts of authentication.

While there are many methods of manual authentication, simply asking for both a work and home number and then calling to verify the order is the easiest (and probably most effective) solution.

Of course, this is only feasible if you sell a small volume (but if your product is expensive, each chargeback is more costly and worth extra effort).

While there are many other options and services, these 2 simple efforts will be enough for most merchants to significantly lower chargebacks (don't dream you'll ever get rid of them completely though - that's like expecting world peace!).

Ultimately, while debate continues on just how big a problem online fraud really is, merchants must be practical and take whatever measures are reasonable.

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