REDUCE CHARGEBACKS

A chargeback is the return of funds to a consumer that is initiated by the consumer's issuing bank. A chargeback results when a cardholder contacts the payment card issuer and disputes a charge appearing on their monthly billing statement. When the cardholder files a complaint with the issuing bank, the merchant will receive a retrieval request or chargeback.

Chargebacks are an unfortunate fact of life for merchants. Many merchants spend substantial amounts of time and money trying to reduce or eliminate them. Typically, merchants employ a wide assortment of chargeback mitigation tools and methods, though often overlooking some of the best options and proceeding without a comprehensive plan of attack.

The causes for chargebacks generally result from:

• Fraud. Someone other than the authorized cardholder used a payment card or the information associated with the card. Claims for fraudulent use of a cardholder's card are especially common with internet and other 'card not present' transactions. Many billions of dollars of online transactions are the result of fraud annually.
• Customer Error. This type of error is also increasingly common for internet transactions, where the customer may not recall whether or not he or she purchased your product or service – especially if your website's name and the name he sees on his credit card statement don't match.
• Merchant Error. Your system for managing and tracking transactions – or your bookkeeping – may be at fault.

• Prevention Tips

  1. Use Address Verification System – or AVS – which compares the customer's stated billing address with the address the credit card company has on file. If your 'customer' has stolen the credit card, he probably won't know the right billing address, so AVS is very useful in detecting fraudulent orders.
  2. Be careful with orders from developing countries which have a higher than average rate of chargeback claims.
  3. When processing in person make sure that if for some reason the swipe terminal isn't working or the credit card cannot be read, the card information is keyed in and that you make an imprint onto the sales receipt. In order to avoid a possible chargeback later, both the card's account number and its expiration date must show up on the receipt.
  4. A common cause of customers' disputes for online sales is that they don't recognize the description of your company that appears on their monthly credit card statement. Make sure that description reflects your website's name and include a toll-free number in their statement's description, so they can telephone you if they have a problem.
  5. For websites, have a 'frequently asked questions' section on your site to further clarify issues that might otherwise lead to a complaint.
  6. Be careful when accepting online orders if the customer uses a free e-mail service because if the card was stolen, his identity may be next to impossible to identify later. To be safe, you could ask him to confirm the sale by telephone or fax.
  7. Set up your shipping process so that the customer's signature is always collected when the product is delivered - and have the shipper forward you a copy of the signed acknowledgment or upon request.
  8. A recent development in fraud control is the IVR terminal (www.voicestamps.com), which can record a customer's voice. If he later claims he didn't order your product or service, the voice verification is e-mailed to you, so you can prove he did in fact make the order.
  9. If you manually process transactions, but don't do so promptly, you may be hit with a chargeback for late presentment.
  10. If you are selling via a website, offer a liberal returns and guarantee policy, which ensures fewer customer complaints and therefore fewer chargebacks.
  11. If an order's billing address and shipping address are different, consider contacting the customer for an explanation for the discrepancy.
  12. Be proactive, by sending your customers e-mail notices regarding orders, shipping, etc. An informed customer is a happy customer.
  13. Monitoring the risk of each transaction prior to processing in order to determine whether it should be declined by examining things such as the IP address, email server and domain, validating the zip code are key to mitigating against fraudsters.
  14. For manual processing and voice authorizations, always note the authorization number on the sales receipt.
  15. If you are a retailer, you should always check the expiration date of the credit card, confirm that the card is signed and that the signature thereon matches the signature on your sales receipt. If there is not a match, require photo ID of the customer.
  16. Implement a management system to flag suspicious transactions. Maintain a "to be checked" file and have your staff contact customers whose orders are flagged by the system. Reasons for flagging can include many of the items mentioned above, such as free e-mail addresses; high-dollar orders; international shipping addresses, etc.
  17. For internet and telephone/mail orders, if the purchaser is a new customer and the sales price is high, require a faxed copy of his credit card and his driver's license.
  18. If you are selling over the Internet, place a warning on your transaction webpage stating that your site employs safeguards against fraud.
  19. Be on the lookout for unusual ordering activity, which includes multiple orders of the same product, 'rush' orders and the same cardholder making multiple orders within a very short time span.
  20. Ensure that all the magnetic stripe or chip information required by the payment card processing company is actually being recorded. Also, compare the card's account number with the number printed out on the receipt.
  21. Always get an authorization from the processing company. If your request for an authorization is denied, do not complete the transaction.
  22. When you are concerned about the veracity of a cardholder's information, ask that person for the telephone number he supplied to his card company and then call the company to verify it. Also call the customer as well, to ensure he or she is actually the cardholder and that he or she placed the order in question. You can also ask the customer to fax you a copy of his signature, as well as the front and back of his credit card.
  23. Shipping addresses containing only a P.O. Box are much higher risk than actual physical addresses.
  24. For internet sales, always require the card's verification number (CVC2 and CVV2), which is the 3 digit number on the back of the credit card. According to Visa, this measure alone reduces chargebacks by over 25%.
  25. Whenever a claim for a refund is made, and it has any merit, give the customer the refund. Doing so can significantly reduce chargebacks.
  26. Disputes will happen, and when they do, you will require all of the appropriate documentation to support you. So make sure to store the documentation in a safe place and in an orderly fashion.
  27. When a customer disputes a transaction, you will receive an enquiry letter. Always respond to it within the stipulated time period. Your copies of face-to-face transactions must legibly display the card's account number, the date of the transaction and its amount, the card expiration date, your company's name and address, and the signature of your customer.