The Hidden Costs of Chargebacks

written by

Kelley Foyle

October 8, 2019

As a society filled with online shoppers, we have grown accustomed to having all our wants and needs available at the click of a button. Over recent years, ecommerce sales have been growing steadily, increasing from 4.2% of overall sales in 2010 to over 10.2% in 2019. However, with this increase in ecommerce sales comes an increase in the potential for friendly fraud scenarios, like chargebacks. 

Friendly fraud occurs when a consumer makes a purchase online, receives the merchandise, and then files for a chargeback from their bank. Often the consumer does not even realize the consequences that result from filing this “fraud” claim through their bank. For instance, the bank will reverse the charge to the merchant and add an additional fee for the transaction.

The costs of chargebacks can add up quickly and harm a company’s profit margin as a result. So what do you do if you are seeing a lot of customer chargebacks?

Investigating a chargeback can be an undoubtedly time-consuming and expensive project. Consequently, many merchants are less likely to counter the claims made by the consumer. A better way to combat chargebacks is to try to prevent them instead. So, here are some methods of detection and prevention that can be employed by merchants. Read the following tips and tricks to find out how to lower the number of chargebacks your company must deal with.

Tips and Tricks

1. Communicate regularly with customers.

  • Notify customers before charging for a recurring payment.
  • Use effective customer service.
  • Make sure your terms of service are prominently displayed.

2. Make sure your billing descriptor is easily recognizable on credit card statements.

3. Always require the customer to enter or re-enter their CVV security code.

  • This helps verify that the customer is in possession of the card at the time of the purchase.

4. Grant refunds and cancellations as soon as they are requested.

  • Fulfilling cancellation requests quickly prevents customers from needing to reach out to their bank altogether.

5. Maintain a well-organized paper trail of every transaction.

6. Use delivery confirmation.

  • Requiring a physical or electronic signature from the intended recipient provides you with tangible proof that the consumer received the merchandise.
  • This process also benefits the consumer in instances when the signature does not match their own, thus confirming fraud.

7. Record IP addresses for purchases and return requests.

8. Leverage Address Verification Service (AVS).

  • Requiring a signature upon delivery for items sent to a customer following receipt of an AVS code indicating an address and zip code match at the time of checkout is a great way to protect against chargebacks.

Certainly, every chargeback dispute you win puts money and merchandise back into your business. A win, however, doesn’t take away the chargeback fees. Utilizing available prevention methods, as well as tools and technology, is the best plan of action to benefit merchants and prevent the costs of chargebacks. 

IPS has over a decade of experience helping merchants resolve their chargeback issues. From developing automated systems that recognize chargebacks to manually labeling and responding to chargebacks, we can help. Contact us to see how we can customize a solution to fit your needs!

written by

Kelley Foyle

October 8, 2019

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    written by

    Kelley Foyle

    October 8, 2019

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    Kelley Foyle

    Kelley Foyle is an eager Fraud Specialist with an affinity for true crime podcasts. She recently earned her Master's degree in Criminology and Justice Studies with a concentration in Victimology from Kent State University. Her thesis focused on wrongful convictions and the systemic failures of our criminal justice system. When she's not searching for new fraud patterns, Kelley can be found crafting, spending time outside, or binging the latest Netflix series.