Merchant Account Solutions

Avoiding Chargebacks & Credit Card Fraud

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10 Ways to Prevent Chargebacks & Fraud

Chargeback, the word that merchants fear. A chargeback is what it's called when a transaction is reversed. In other words, rather than adding money to your account it is deducted due to a chargeback. Chargebacks can occur for a wide variety of reasons, such as double-charging, credit card expiration, bank errors and customer disputes. If you get too many chargebacks against you, there is a possibility that you will loose your merchant account. Once you've lost your merchant account you are placed on the Visa®/MasterCard® MATCH list for several years which all Merchant Account Providers have access to, and if they find you on the list they won't reissue a merchant account to you. Of all the credit card processing solutions available, Internet/MOTO transactions seem to have the worst cases of fraud and chargebacks.

Tips that can help you reduce chargebacks:

1. On your order confirmation page provide the customer with the name, phone number, e-mail address, etc., of your company so that they will recognize it when it appears on their monthly credit card statement. Not recognizing a charge is the number one reason a customer will issue a chargeback.

2. Include this same company information in the e-mail confirmation that your customers get when an order is placed (they do get one don't they? If not, they should. it's good for keeping records and will also help to avoid charge backs.)

3. Use Address Verification. People ordering products using a stolen card number will never use the real cardholder's billing address, so this is your chance to stop the order before it is too late and results in a chargeback.

4. Scrutinize orders from foreign countries. A large percentage of fraudulent Internet purchases are made from Indonesia, Russia, and other eastern block or developing countries. If the order is paid for using a stolen credit card the real owner of the card will issue a chargeback against you.

5. If an order seems suspicious, call or email the customer and attempt to verify anything you can about them. Pay attention to strange orders and then follow up to avoid a chargeback.

6. If you ship a product, include the customers invoice in the order. Always keep copies so if you're ever challenged with a chargeback you have some kind of defense.

7. Be wary of accepting orders from people who used a free e-mail address when ordering (i.e. Hotmail, Yahoo, etc.). Tracking people who used a free e-mail address is almost impossible, it's much easier for them to get away than if they used their Internet Service Provider (ISP) e-mail address.

8. Ask for the 3-digit card security code (CVV or CVC) on the reverse side of the credit card. It will be the last 3 digits you see in the signature area of the credit card. This information is crucial to fighting a chargeback.

9. If your business delivers products use a carrier that requires a signature on delivery, and allows you to have a copy of the signature. Retain these for your records to use incase a customer issues a chargeback.

10. Taking the time to post a warning message on your order page to those who may attempt to make a fraudulent order will greatly deter the number of instances of fraud and chargebacks. Be sure to mention that IP (Internet Protocol) addresses are being logged. IP addresses can come in handy when locating people about fraudulent orders.

Check out our merchant account FAQ for answers to your other questions.