As the transfer of funds becomes increasingly digital, those with the intent to commit fraud find it easier and easier to do so. Unfortunately, this includes customers who unwittingly make mistakes or purposely abuse the chargeback process. There are many opportunities for fraud to occur as money is transferred between credit card users, credit card issuers, and merchants.
Chargeback fraud is often called “friendly fraud.” This type of merchant credit card fraud occurs when a consumer purchases something online with a credit card, receives the items, and then requests the money back from the issuing bank. Basically, a chargeback cancels the transaction, allowing the consumer to get a refund of the money. Unfortunately, this leaves the merchant with a loss of goods or services, even if the merchant took steps to verify the financial transaction.
Unfortunately, merchants must accept that chargeback fraud is part of doing business. On the other hand, there are steps merchants can take to reduce these financial reversals:
- One of the first things the merchant should do is to begin a dispute response. Creating this document aims to refute the cardholder’s claim, outlining any evidence against the claim and explaining the cause of the dispute. The response document should outline evidence that aligns with the card regulations and network rules.
- Preventing friendly chargeback fraud is even better than winning a dispute. Merchants can use real-time communication with the cardholder’s issuing bank as soon as a consumer prompts a dispute. This real-time resolution plan puts all relevant information in front of the issuing bank. Hence, the bank and the consumer have a correct understanding of the circumstances leading to the dispute.
- Merchants can prevent true fraud with front end filters and other types of credit card fraud merchant protection. True fraud happens when a person deliberately uses stolen information from credit cards to buy things. When this happens, the actual cardholder is likely to file a dispute, and the merchant will be accountable for the refund. Front end fraud filters are used to recognize these illegal transactions and prevent them from happening.
- Of course, it’s always a good idea for merchants to tighten up their mode of operation. A solid customer service system and easily recognized merchant descriptors are great ways to avoid confused customers. Merchants should review their logistics, communication systems, and anything else that could confuse or frustrate consumers.
Chargebacks provide protection for cardholders and place accountability on the merchants, but business owners don’t need to accept fraudulent charges without making an effort to avoid them.
Some of the only ways to handle chargeback fraud happened after a dispute was filed in the past. Fortunately, there are tools and services available today that help merchants avoid fraud before disputes occur.