Businesses are dealing with numerous fraud attempts and chargeback claims is one of them. These false chargebacks hinder business growth as they come with costly fees, transaction processing, and lost shipping charges. The time and resources lost in disputes and meetings are also a damage to the company’s customer coverage. Moreover, a large number of chargeback claims can lead to reputational damage, which can even result in merchant account termination. The facts speak louder as they highlight the enormous $41 billion lost in payment fraud globally in 2022. This blog will explain what chargeback protection is and will present a guide to businesses on how to reduce chargeback fraud.
What are Chargebacks?
E-commerce players are well aware of chargeback attempts, which are also referred to as disputed transactions. In this process, customers request a refund of their order they didn’t intend to buy or didn’t receive on time. For instance, in factual scenarios, a user orders something from the e-commerce platform and pays for it online using a credit or debit card, after which they decide to cancel the order and request a refund due to delay or lack of customer support. If the merchant doesn’t respond with a proper reason, the user initiates the chargeback claim to the credit/debit card issuer.
Various Types of Chargebacks
There are various types of chargeback claims, but this blog will cover the top three ones:
The first type of chargeback is a criminal fraud attempt. In this type, the fraudsters make purchases from stolen card data, and when the real cardholder receives the email notification of the purchase, he files a chargeback claim to the card provider.
The second most common type is when the merchant or a company makes a transaction error. For instance, a bug in the e-commerce platform can charge incorrect amounts or extend delivery times of the purchase.
In friendly fraud, the cardholder attempts chargeback claims for the items they intend to keep. It is when a person buys something online and receives it fully functional without any delays or interruptions. After that, they file a chargeback claiming that they never purchased the first place.
Chargeback Claims – How it Impacts Businesses
Every modern-day business experiences chargeback claims in one way or another. Having a fraud prevention solution in place is necessary for almost every e-commerce platform nowadays, as these attempts are increasing each day. Customers purposefully lying about purchases, fraudsters ordering products using stolen card data, and illegitimate businesses trying to keep the amount all fall under chargeback fraud.
Without a proper fraud prevention and detection protocol, firms can experience significant losses. According to the statistics, merchants can face $100 billion worth of chargeback claims by the end of 2023, as 75% of companies are experiencing a rise in fraud attempts.
As per the standards and customer protection policies, companies have to pay up to 3 times more than the price when a chargeback is filed. This heavily impacts firms new to the e-commerce landscape as it pushes the undesired expenses off the limit.
Ways to Reduce Chargeback Claims
Here are the top four proven methods a business can implement to reduce the number of chargeback claims:
The first method is the use of human intelligence when verifying payments. Businesses having a relatively smaller number of transactions can process payments manually, just to ensure no illegal purchase passes within the system. Although, this is not a perfect approach for corporates processing thousands of orders each day. They need to have a complete chargeback protection system with AI capabilities to easily predict fraud risk. This can lower the risk of fraud while reducing false chargeback claims, ultimately leading to business success in the long run.
To reduce the losses from chargeback claims, it is necessary to automate the payment processing strategy with a complete reviewing system. With an automated chargeback review module, businesses can track ongoing transactions and product purchases. Every transaction is automatically reviewed with security solutions to check for various types of cybercrime activity. Modern chargeback protection solutions check for multiple types of activity, such as money laundering, fraud, identity theft, corruption of information, terrorist financing, and even bribery. These systems utilise the power of AI to detect abnormal transaction patterns, helping businesses identify unusual transaction amounts, number of purchases, and origins.
In-Depth Data Analysis
Speaking of AI and data analysis, companies can identify diverse patterns from a single transaction to detect false chargeback claims. Extracting in-depth data can provide large-scale information such as checkout flows, card networking patterns, bank/card provider information to even anomalies and risks for various types of transactions. Employing a suitable business verification solution can eliminate delays and regulate the company’s workflow. There are many factors to consider when assessing a transaction risk, such as IP or geolocation from which the claim is filed. Other than that, social network analysis and device biometric processing are crucial factors in this regard.
Transparent Refund Policy
To reduce chargeback claims, firms must implement a transparent refund policy that clearly states the steps in case of digital crime or fraudulent attempts. This can help reduce chargeback claims being filed in the first place, as users are aware of the processing time and the legalities listed in the policy. So instead of initiating a chargeback, firms can encourage the firms for a refund that also implies losses but is significantly lower than chargebacks.
Although there is no assurance of stopping chargeback claims completely, taking these approaches can help businesses reduce the rate and minimise the risk of hefty losses. Before any legal action, firms should always evaluate the type of chargeback they face. Employing an AI-powered fraud prevention solution is a game changer in this regard that can not only reduce chargeback claims but also provide in-depth data analysis to businesses, allowing them to make informed financial decisions in the long run.
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