Things to Know About Chargeback Fraud and Its Prevention

Fraud is more or less a part of eCommerce. For every ten genuine transactions, there will be 1-3 fraud transactions or charges that come back to haunt the merchants. It’s not just hackers who are responsible for it. Sometimes, customers also try to find a loophole and take advantage of a certain offer or scheme.

We are not talking about discounts and coupons which are authentic means of spending less and getting more. We are talking about chargeback fraud. These seem to be increasing with every passing day. Merchants are finding it hard to manage and track chargebacks within the stipulated time.

It has come to a stage where a separate section or department with employees has to be created to handle chargeback claims, process them, identify the fraud ones, and pay the others. Legal cases, reports, paperwork, etc. consume not only time but also money. Merchants lose a good portion of their revenue due to chargebacks.

Does that mean they can do away with the feature? No. Customers with genuine claims will end up in losses and this will ultimately affect the sales and returns of the merchants. The best way to handle chargebacks is by hiring third-party chargeback fraud management service providers who use the latest technology to streamline the process and simplify it. The service providers aim to help merchants reduce the risk of revenue loss due to chargeback.

Over the years, many experts have been analyzing the trends to come up with comprehensive solutions to tackle chargeback fraud and returns abuse prevention. To understand how these systems work, it is essential to know what exactly chargeback fraud means, how many types can be seen in the market, and ways to prevent it.

What is Chargeback?

A chargeback is an amount a customer claims from their bank for a transaction that has already taken place. The reasons could be many. Whether the transaction was done by a hacker or if the customer is not happy with the product or service received or if they want to return something they’ve purchased, etc.

The bank forwards the request to the merchant to return the amount to pay the customer. The actual responsibility falls on the merchant to determine whether the claim is genuine or fraud, collect evidence, complete the paperwork, and then pay the customer (if required). Despite having a security system in place to provide safe transactions, many eCommerce merchants end up having to pay chargebacks. One reason is that fighting a legal battle for every claim will prove to be disastrous for the business.

By dividing chargeback frauds into the following types, experts have been able to create software systems that can detect and highlight the fraud claims, making it easier for merchants to clear the genuine ones first and keep important customers happy.

Types of Chargeback Fraud and Its Prevention

Merchant Error

This is, of course, the merchant’s fault. When the merchant doesn’t deliver the promised goods to the customers, or sends fake/ broken ones, or sends something other than the one the customer ordered, the person will ask for a chargeback. The merchant has no choice but to accept it as it is their fault.

Actual Fraud

The main reason chargeback became common is because of this. Hackers or cyber criminals get hold of customers’ credit card/ bank information and make purchases. When the customers get to know of this, they put a request for chargeback along with taking other precautions to block and replace their cards. While this cannot be entirely stopped, merchants can tighten up their procedures to add more security features that will prevent hackers from using others’ information. That said, customers are also expected to be careful about their confidential data.

Friendly Fraud

This has been troubling a lot of merchants in recent times. Despite the name, there is nothing friendly about this fraud. Customers make legitimate transactions, get the products they’ve ordered, and still go on to file a chargeback claim. With the onus of proving the truth falling on the merchant, many customers have gotten away with such claims as banks tend to pay the amount from merchants’ eCommerce account and credit it back to the customers.

Chargeback fraud management service focuses on all three types of fraud. The service provider uses the latest technology available (including but not limited to Artificial Intelligence, machine learning algorithms, and computer vision) to identify the patterns in the chargeback claims, make use of the customer’s purchase history, and other information to ensure that the claim is indeed genuine.

The service providers also suggest ways to create better websites and enhance security by identifying the loopholes in the backend process of the business. Merchants can contact any top service providers for in-depth information about how chargeback management systems are beneficial for their business.