The Foundation of Successful Chargeback Management is Fraud Prevention

Failure to stop criminal fraud makes it more difficult to deal with other threat sources that can result in chargebacks. Chargebacks, also known as credit card disputes or chargebacks, are likely something you are aware of if you have worked in the eCommerce industry for any time.

These payment reversals at the bank level are not just minor annoyances. They might eventually pose a long-term threat to the survival of your company. Each chargeback leads to diminished earnings and increased costs.

Chargebacks: What Causes Them?

For chargeback fraud management, it is important to understand why chargeback happens to manage it effectively. Every given chargeback has a reason code intended to describe the situation. These reason codes, however, are not trustworthy predictors. The truth is that, regardless of code, we can link every chargeback to one of three codes attached: 

Criminal behavior that includes all third-party fraud attacks in which a bad actor poses as a legitimate user to make fraudulent purchases is called "third-party fraud."  

The term "merchant error" refers to any error in policy or procedure on your side that could lead to a chargeback.  

First-Party Fraud: In friendly fraud, a cardholder completes a transaction and subsequently asks for a chargeback without having a good reason.

Before you can resolve chargebacks, you must be able to source disputes. This is because every chargeback source necessitates a wholly unique but related solution. Let's imagine, for example, that you are having issues with cardholders committing friendly fraud. 

Treating these chargebacks as third-party criminal fraudsters in an attempt to solve the issue will waste resources and cause conflict with no meaningful effect on disputes.

However, if you receive chargebacks due to criminal fraud and mistakenly believe they are the consequence of friendly fraud, that would be far worse. In that situation, you risk re-victimizing a cardholder who has previously paid criminals money while the real fraudster gets away with it.

Extending Reason Codes For Chargeback Fraud Management

A reason code is included with each chargeback that a bank issues. These numbers are used to specify the grounds for the chargeback. So why are reason codes so inefficient at identifying the sources of chargebacks? The source of the issue is friendly fraud.

A cardholder effectively makes a fraudulent claim when they engage in friendly fraud, whether on purpose or by mistake. However, the bank accepts this assertion at its value and issues a chargeback against you. The bank then assigns a reason code to the case that may or may not accurately describe the current circumstances.  

Let's use a Visa cardholder as an example: Now, a member of the cardholder's immediate family, such as a child or spouse, has access to the card. Without the cardholder's knowledge, a family member makes a purchase; when the transaction appears on the cardholder's statement, they believe it to be an unauthorized acquisition and request a chargeback. Visa reason code 10.4 (Other Fraud - Card-Absent Environment) is added to the case when the bank submits a chargeback. 

This is only one illustration of a restriction associated with the current reason code-based approach.

But in a broader sense, it shows why you can't rely on reason codes to identify problems. Chargebacks must be approached as a whole, and as part of a larger plan, pre- and post-transaction dangers must be addressed.

How to Improve Your Chargeback Management Plan

Chargebacks should be divided into two categories: those that can be avoided through proactive measures like criminal fraud management and those that can be fought through representation. You must develop a plan that handles all three of these interconnected vulnerability sources in tandem. 

Preventing Fraud on Third Parties: With the proper tools and strategies, you can stop most third-party fraud assaults. You need to start here if you're seeking the best, most thorough way to segment chargebacks. 

To combat recognized fraud red flags, you can use anti-fraud techniques, such as:

• Geolocation
• Fraud Blacklists
• Velocity Limits
• Device Fingerprinting
• CVV Verification
• 3-D Secure Technology
• Address Verification Service (AVS)

However, in most cases, you require some third-party assistance to limit true fraud chargebacks. 

Reduce Merchant Error: Numerous mistakes and friction points could lead to a chargeback claim. Solving these issues will produce useful operational insights. Among the most typical are:

• Mistakes in customer service, such as making it more difficult to get live service. 
• Shipping and return conditions are unclear. 
• Not checking the precision and usability of product pages. 
• Unable to connect chargebacks to sales data. 
• Not keeping precise and clear records.

 These are but a few instances. You should attempt shopping at your store and evaluating customer service channels to completely test your system to see if there are any dangers for merchant error. In other words, perform a top-down audit of all areas of your company—the only approach to identify mistakes that causes chargebacks. 

Disprove Friendly Fraud: You can be much more confident in your ability to challenge chargebacks once you've (more or less) ruled out criminal fraud and merchant error. 

Even if their explanation code is typically associated with the fraud. 

Chargebacks that fall into this category are all the consequences of post-transaction problems that are not the merchant's fault. It's possible that a consumer misunderstood your policies or became perplexed by a certain step in the procedure. Another possibility is that the customer is purposefully shoplifting online. 

To Summarize:

Representation cannot reverse the chargeback. Each dispute that is filed has a nonrefundable filing fee and still affects your chargeback ratio. Consider outsourcing chargeback fraud management and prevention to a responsible third party that offers chargeback fraud management solutions in light of this additional factor.

Solution frees you from the burden of combating chargeback fraud. By leveraging cutting-edge machine learning technology, it can identify potential bad actors and prevent fraud before it occurs, assisting you in tackling abuse and concentrating on increasing your revenue while also enhancing the entire customer experience.