Avoiding Chargebacks in CNP Transactions for e-Commerce Merchants

Chargebacks are a nightmare for all Ecommerce merchants and online business owners. A chargeback dispute is a situation where a cardholder declines a purchase being made or is not satisfied by the product or service rendered.

And who do you think the victims of chargeback cases are? E-Commerce merchants are. They are left responsible to reimburse the cardholder, and, sometimes compensate for the bank’s inconvenience! So what can be done to avoid and drastically decrease the amount of chargeback disputes?

We can divide the causes of chargebacks into two groups ’ customer chargebacks and fraudulent transactions chargebacks.

Customer chargebacks:

Chargebacks may occur when clients are dissatisfied with a product or service rendered. So perhaps, first of all, e-Commerce merchants should try to provide no ground for client complaints and returns. Other client complaints may include ’Service not rendered’ complaint, when a client declares a service or product not being provided after being paid for. In this case e-Commerce merchants should provide their processing bank with invoices which may evidence the fact that they are not at fault.

Double or Duplicate processing is when a product is charged twice or more for. This is usually caused by a client mistakenly clicking the "Submit" button twice or more after entering the relevant transaction information. This may be avoided by implementing duplicate transaction filters, which are small processor-side scripts which remove duplicate transaction entries prior to processing. Double or Duplicate processing may also occur due to a processor system or program error. Such errors must be reported to the credit card processing service provider.

Fraudulent transaction chargebacks:

In CNP (Card not present) transactions fraud is most probable. Credit card hackers, or carders as they are called, are one of the main reasons of chargebacks. More than 60% of all chargeback cases are caused by carders and credit card fraud. To settle a chargeback dispute the e-Commerce merchant should send all the relevant information about product delivery, transaction details, personal information provide to their processing bank. But this usually does not help as more than 99% of credit card fraud cases are never solved. So the best way out of it is to prevent fraudulent credit card transactions.

Preventing chargebacks due to credit card fraud includes implementing your SSL secure order form with extra security technologies like MasterCard’ SecureCode’ and Visa’ 3-D Secure’. Other tips to prevent chargebacks on fraud ground:

1. always make sure that all the relevant information is filled,
2. never accept expired credit cards,
3. overseas addresses are considered high-risk and there’s more risk they might be fraudulent,
4. be aware of customers who pay more for faster product delivery,
5. try to always verify purchases by phone or e-mail, if this is not possible take the largest orders into account only,
6. using address verification services provided by the processing bank is recommended as all carders will use a different address from the cardholder’s address,
7. having an IP address logging and locating system comes in quite handy when dealing with chargeback disputes,
8. it is important to ask for the three digit security code found at the back of most credit cards, usually the last three numbers in the area where the cardholder’s signature is,
9. it is better to spend an extra 1 minute per order just to look at the provided suspicious information, which may include funny names, e-mails, telephone numbers, different bill-to and ship-to addresses,
10. spending 5 minutes per order and verifying or trying to get in touch with the client may almost eliminate the chances of fraud,
11. be careful which processor you chose, as processor service staff may be part of a carding-team,
12. provide your customers with information for cardholders to prevent credit card fraud.

In 2006 1.2 million credit cards have been stolen or are at risk, and taking these steps will significantly decrease chargeback disputes and cases.

The fate of over-chargebacked e-Commerce merchants will surely be the cancellation of their credit card processing contract with the processing bank. Most banks keep a black-list of over-chargebacked e-Commerce merchants and this list is shared, which makes it impossible for an e-Commerce merchant to get a credit card processing facility. It is in the e-Commerce merchant’s interest to reject suspicious orders.