If you run a business that sells items, you need to be careful when you take payments online. It is nearly impossible to do this kind of business without taking credit cards. The problem is that chargebacks and credit card fraud are major problems for retailers around the world. Globally, more than $16.3 billion was lost to credit card fraud in 2014. In the United States alone, credit card fraud costs the economy $8 billion each year. Nearly 12% of all cases of credit card fraud are from payments on websites.
Chargebacks are one of the ways people perpetrate fraud with credit cards. These are costly and problematic but can be prevented and avoided, at least in some cases.
What is a chargeback?
When a customer questions a charge they see on their credit card statement, it is called a chargeback. The money gets redeposited in their account and removed from the business’s account. They can be caused by unauthorized use of credit cards or when an ordered item does not arrive. There are plenty of instances when customers are not trying to steal something or do something nefarious but there are also instances where a person is just trying to get away with something. The real problem for the merchant is that if they have too many of these, it can damage the relationship between the merchant and the credit card processor. The costs can also add up as merchants are often charged a fee.
It takes work to prevent fraudulent chargebacks. Here are some tips to help protect your business:
Know your credit card processor’s protocol and follow it. Each credit card processor has a protocol in place to prevent improper use of credit cards. Make sure you know what yours is and follow it to the letter. This is especially important if yours is an ecommerce site. If you can, use services such as MasterCard SecureCode or Verified by Visa.
Make sure all customers can enter the correct billing zip code. Anyone can find a credit card on the side of the road and try to buy stuff with it. The person who owns the credit card will know the billing address. Someone trying to use credit cards fraudulently may not. Some online merchants refuse any sales that are to be delivered to an address that differs from the billing address but people often buy gifts to be shipped to other addresses.
Check the signature and ID. If you are taking credit cards in a store, check the signature. Most stores do not check this and people can get away with using credit cards that are not their own. It does not take long for your staff to check the signature and ID if it is warranted.
Not all chargebacks are fraud, and many of these can be prevented as well.
Make sure your payment descriptor can be recognized. If you business is called “Buffy’s Best Banana Bagels” but you do business under another name (say the name of a parent company), make sure that is very clear to the customers who shop on your site and in your brick and mortar location, if you have one. It makes sense that if your business name differs from the name on the credit card statement, the customer will be confused.
Contact customers when you are notified about chargebacks. When an item doesn’t arrive, the customer calls their credit card company to dispute a charge, the merchant is notified. You may be able to work it out directly if the item arrived damaged or not at all. The customer withdraws the chargeback claim and you are not charged the fee. This is also a way for you to provide excellent customer service and people do appreciate that.
One thing you need to know when you are dealing with credit cards is that most companies that issue them will take the customer’s side over the merchant so only right the chargebacks when it makes the most sense. A part of this rationale is how much the items in question are worth. It is often cheaper to accept that loss than to fight it.
Take care and you will be able to prevent more chargebacks than you think.