Credit Card Chargeback Primer
The Additional Burdens of Chargebacks
Besides losing the money earned from a sale, online businesses have additional costs, some monetary, some not, that additionally hurt their business. One cost rarely recovered is the cost of shipping merchandise in a disputed sale. If you shipped that package via overnight service to the customer chances are you lost an additional $35 - $100 on top of your lost sales revenue.
Even worse, if a merchant gets too many chargebacks, usually more than one or two percent of total sales, their merchant account will be terminated by their processor and the merchant will be added to the Terminated Merchant File (also called The Match File). This file is a blacklist that effectively prevents the merchant from ever accepting credit cards again. Needless to say it is important to keep chargebacks to an absolute minimum as online merchants have few options for accepting payment and none are as powerful as owning a true merchant account.
Even if your online business manages to keep its chargebacks below the 1-2% threshold, any chargeback you receive will require spending time researching the sale and gathering the necessary documentation requested by your processing bank. Every online business would rather spend that time promoting their business instead of defending its already completed sales.
Chargeback Prevention
The best way to deal with any chargeback is to prevent it from happening in the first place. The following suggestions are very generic and can be used by most businesses to decrease their potential chargeback potential.
Use a clear DBA (Doing Business As) name that customers will recognize. Vague corporate names that do not accurately describe what your company might do or sell will only confuse customers when they review their billing statements. An unrecognized DBA name on billing statements is one of the most common causes of chargebacks. Put your phone number on your customer's statements. If they do not recognize your DBA they can call you to find out who you are and why you charged them. Always respond to a chargeback as quickly as possible. There is a limited amount of time allotted to resolving a chargeback. If you miss the window of opportunity to respond, you forfeit your ability to fight the chargeback. If your processing bank has any more questions or requests, a quick response from you will ensure that they have enough time to get the relevant information from you. Never accept an expired credit card. Obtain authorization for the full amount of the sale. Declined transactions should not be accepted or split into smaller amounts. Some disputes are not the result of unauthorized credit card use. Rather, they start because the customer disputes the quality of the goods or services purchased. The best way to avoid this type of chargeback is to work closely with the customer to establish a mutually satisfactory solution. Balance each batch to the host or to your tickets; this will help prevent duplicate charges. Call or fax any large or suspicious orders to ensure the order is legit. If you are unable to reach the customer, you might have been intentionally been given incorrect contact information. Verify the customer's address. It is possible to verify the customer's name, address and phone number with the card-issuing bank. By calling the Voice Authorization Center for address verification, you can verify the address and also provide proof that you verified the address. Always get signed proof of delivery. Be able to provide a shipping tracer log that shows that the customer received the shipped goods. Charge the customer's account at the time the goods are shipped. If you know there will be a delay in delivery, wait to process your customer's credit card. Be suspicious of high-ticket sales requested to be sent next-day air or if a runner will be in to pick up the purchase at a later time. Use the fraud services offered by the processing bank including AVS (Address Verification) and CVV2. Have your return/refund policy clearly stated on your website. Make it a requirement to read before processing the order. Provide accurate descriptions and images of your products on your website. Be very cautious of any foreign orders. Generally, orders from Asia, The Middle East, and most parts of Africa should be considered high risk. Be wary of orders with domestic billing addresses but with foreign shipping addresses. They are usually fraudulent. Be wary of orders where the customer is willing to pay more for faster delivery.
Summary
It's no secret that online merchants are at a disadvantage when it comes to chargebacks. With no credit card to swipe or receipt to sign, verification of a sale is voodoo at best.
There are new tools available, and more on the way, that aim to reduce online fraud and therefore reduce opportunities for chargebacks. Two similar technologies, Verified by Visa and SecureCode, by Visa and MasterCard respectively, will help to verify a customer's identity at the time of purchase. Unfortunately, at the time of this article was written, these technologies were not fully supported and have a limited impact on fraud.
So what is an online merchant to do? Exactly what you've always been doing: making your customers happy by offering them a great product or service, having a customer-centric customer satisfaction policy, and providing your customers with an overall positive experience. Just be sure to approach each sale with due diligence and you'll be keeping your hard earned money, not giving it back.
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