For those operating within the ecommerce industry, you most likely know what a card dispute is. A chargeback is another name for a card dispute. Chargebacks can have a huge impact on how successfully your business operates. This is why chargeback management is a vital for your ecommerce based company.
Not only does each chargeback result in a loss of revenue, but there are also additional fees on top of this. If your business experiences a significant amount of these card disputes, it can seriously impact your bottom line. It may even threaten your business’ survival.
Why does a chargeback happen?
In order to understand why you need a chargeback management process in place, you need to know why chargebacks occur. Fortunately for you, each chargeback you get notified of should come with a code. This code, while vague, should explain the reason for it. There are many resources online that list all the different chargeback reason codes that you may find handy.
However, these codes are not always very reliable. What is true is that you can link pretty much all card disputes to one of three different sources. This is independent of the chargeback code.
These include first party fraud, third party fraud, as well as merchant error.
First party fraud is when fraud is committed against a merchant by one of its own customers. If a customer gives false information when making a purchase, this would count as first party fraud.
As a business owner, you owe it to your customers to watch out for financial scams. Third party fraud can be classified as this. Specifically, it refers to any fraud committed against a financial institution or merchant by an unrelated or unknown third party. An example of this could be when someone steals another person’s identify or personal details to make unauthorized purchases.
While you may not have much control over first and third party fraud, you definitly can control merchant error chargebacks. This type of chargeback occurs when you do not give your customer what they paid for. A merchant error chargeback can also occur if you accidentally charge the cardholder with an incorrect, duplicate, or unauthorized transaction.
Building a Chargeback Management Solution
Every chargeback received should classified in one of two ways, . The first bucket are for those that you can prevent through proactive means such as criminal fraud management. The other bucket is for the chargebacks that you can fight through representation. However, doing this is not easy and a solution needs to be built that addresses all of the issues in a coordinated way.
A chargeback management solution is an important part of any business fraud prevention strategy. With the right types of tools in place, you can prevent most forms of third party fraud. Luckily for you, there are many anti-fraud tools that you can use in your business, including:
- 3D secure technology
- CVV verification
- Fraud blacklists
- Address Verification Service (AVS)
- Velocity limits
- Device fingerprinting
While you may not have control over every type of chargeback, you can definitely manage merchant error chargebacks. There exist numerous different friction points and potential errors that can result in a card dispute. You can gain operational insights by removing these problem issues.
Some of the most common reasons include customer service problems, shipping and return policies that are not clear, as well as a lack of auditing product pages. In addition to these, some other reasons may be that chargebacks not being matching with sales records, and your business does not keep clear and accurate records.
Once criminal fraud and merchant error have both been ruled out, an ecommerce business can have greater confidence in refuting card disputes. This is true even for those ones that have codes attributed to them relating to fraud.
These chargebacks all typically result from issues that have occurred after the transaction has been made but are not due to merchant error.
Your Business Needs a Chargeback Management Process
From this it should be abundantly clear that chargeback management is not something that is simple or straightforward. A solution needs to be built that identifies the difference between these issues occurring pre- and post- transaction. You will also need to understand the various sources of chargebacks, such as third party fraud.
What else is important, is understanding that the chargeback sources both influence and overlap with one another. The approach taken to finding a solution to threats such as criminal fraud will have a direct impact on an ecommerce business’ response to both friendly fraud and merchant error.