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How to Overcome the Rising Challenge of Chargebacks

The cost of chargeback claims can quickly add up for an online retailer. In this article, learn about the single most effective way to overcome the challenge of chargebacks.

At this point, there’s no denying that the cost of card-not-present (CNP) fraud is increasing quicker than anyone anticipated. By 2023, it’s projected that global yearly losses associated with CNP fraud will reach as higher as $36 billion.

In the U.S. alone, fraud losses are projected to reach $12 billion by that same time.

Fraudulent chargeback claims make up a large percentage of that total cost, and they’re unfortunately something that nearly every online retailer has had to learn to deal with. While it’s certainly possible to eliminate chargebacks by rejecting every potentially fraudulent transaction, this strategy will usually backfire on merchants resulting in a sharp increase in false declines.

Even the most accurate fraud prevention technology can make a mistake and decline a legitimate purchase. Over time, the losses from false declines will compound and seriously impact a business’ ability to grow.

The best way to overcome the challenge of chargeback fraud is by investing in a fraud solution that offers complete chargeback reimbursement protection. Keep reading to learn more about how a chargeback guarantee works, and why it’s an essential component to a successful fraud prevention program.

What is Chargeback Fraud?

To start, let’s define what a fraudulent chargeback is.

A chargeback is a payment that is refunded to a consumer after they have successfully filed a dispute for an item on their account statement. The customer wins the dispute by claiming that they didn’t authorize the transaction, or didn’t receive the product or service that was purchased.

The merchant receives notice that the customer filed a dispute and they’re told to refund the money while the financial institution conducts an investigation. This process can sometimes take up to 75 days to complete.

It’s estimated that less than 32% of online retailers actually win a chargeback dispute. Larger companies have a better chance of winning disputes when they have representment. Representment describes providing evidence to show that the sale was correctly completed. Showing that the claim isn’t true helps the business get money back from false chargebacks.

When a customer files a chargeback claim for a purchase that they authorized, this is chargeback fraud. There are two types of chargeback fraud: friendly, and criminal.

Friendly fraud describes a situation where the cardholder knows about, allows, or benefits. They request a chargeback knowing that the product or service was, in fact, provided.

Criminal fraud includes the following examples.

  • The person uses a stolen or lost card for the purchase
  • Criminals create and use counterfeit credit cards and account numbers
  • Criminals change the shipping information after the completion of a legitimate purchase
  • A person falsifies a signature

First appeared on Vesta’s Blog on eCommerce Fraud.

Featured image credit: Photo by Glenn Carstens-Peters on Unsplash 

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