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10 Ways to Reduce
Chargebacks and Fraud
by:
Jim Conley II, MerchantSeek
Merchant concern
about online credit card fraud and chargebacks is
rising at a significant rate. According to the
2001 Online Fraud Report, conducted by Mindwave
Research, it revealed that, "41% of
merchants say the issue of online credit card
fraud is 'very serious' to their business."
As e-commerce continues to flourish the number of
instances of credit card fraud and chargebacks
will continue to mount higher. It should go
without saying that the need to take certain
measures to reduce and virtually eliminate
chargebacks and fraud is certainly paramount.
Chargeback, the word that Internet 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.
Chargebacks can occur for a wide variety of
reasons, such as double-charging, credit card
expiration, bank error and customer disputes. If
you get too many chargebacks against you, there
is a possibility that you will lose your merchant
account. Once you've lost your merchant account
you are placed on the Visa/MasterCard Terminated
Merchant File (TMF/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. If you are one
of those merchants who have lost their merchant
account, there is still hope. Bank Card Law specializes in helping
companies who've lost their merchant account
because of excessive chargebacks.
Here are some ways you can greatly reduce the
instances of chargebacks and fraud, even
potentially eliminate the risk altogether:
#10 If the customer is present examine the card
carefully
One common sense method to fight chargebacks is to examine the
customer's card. Look at the expiration date and the
signature panel for good measure. If the card does not
have a signature you are free to check the customer's ID.
You may also request that the customer signs the card and if the
customer refuses, you may decline to accept the customer's
credit card.
#9 Verify CVC2 and CVV2 Verification
Numbers
This tactic alone can not only reduce instances
of chargebacks by 26%, according to Visa, but
also reduce any pass-through fees that may be
charged when a credit card order is conducted. On
the back of MasterCard, most Visa and Discover
credit cards is a 3-digit security code located
right after your credit card number. Requiring
customers to give the 3-digit code acts as an
additional verification measure. American Express
cards also have a similar security code that is
located on the front of the card right above the
cardholder's account number and is usually
4-digits long. Most online payment processors
support entering the security codes when
processing credit card orders. Check with your
payment gateway provider (i.e. Verisign,
Authorize.Net, ECHO Inc., etc) for details.
#8 Use Address Verification System (AVS)
AVS checks to ensure the address entered on the
order form matches the address to where the
cardholder's billing statements are mailed to.
People ordering products and/or services 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's too late.
AVS only works with orders conducted in the US.
Failure to use AVS when processing credit card
transactions will always result in paying higher
credit card processing fees.
#7 Scrutinize orders from developing
foreign countries
A large percentage of fraudulent Internet
purchases are made from Indonesia, Russia, and
other eastern block or developing countries.
Accept orders from such countries at your own
risk until a worldwide AVS system is developed.
#6 Let customers know what name will
appear on statements
Many merchants who use 3rd Party Processing
companies have run into problems because the
company name that appears on cardholder's monthly
statements is usually the name of the 3rd party
processing company and not the company name of
the site the cardholder made their purchase from.
This isn't always the case, but in many cases it
is. If you use a 3rd party processor, and even if
you don't, make sure the customer knows what name
will appear on their credit card statement at the
end of the month. This will help to reduce any
confusion that might would otherwise occur.
#5 Handle suspicious orders accordingly
If an order seems suspicious the best way to
handle the situation is to either call or e-mail
the customer and attempt to verify that they
placed the order. As a rule of thumb, if in
doubt, check things out. It may be a good idea
that if a customer makes an unusually large
volume purchase from your site to follow-up with
a verification call. This is where a system like
VoiceStamps, previously mentioned above, can come
in very handy.
#4 Watch out for orders using free e-mail
addresses
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 then if they
used their Internet Service Provider (ISP) or
their own company web site e-mail address. To
check whether an e-mail address is a freebie or
not just take the part of the address after the
"@" symbol, add "www" to the
front of it and see what website it brings up
(i.e. joe@yahoo.com = www.yahoo.com).
#3 Signatures on delivery
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.
#2 Request fax copies of ID and credit
card
You may want to request your customer to fax a
copy of both sides of their credit card and
driver's license. This tactic usually works best
in a B-to-B (business to business) sales
environment. While this is not a defense under
Visa or MasterCard rules, it is yet another way
to deter fraud.
#1 Posting a warning message
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. Be sure to mention that IP
(Internet Protocol) addresses are being logged.
IP addresses can come in handy when locating
people about fraudulent orders.
Taking measures to deter and eliminate fraud and
chargebacks from occurring are a necessity in
order to operate a successful online business.
Each day companies dedicated to risk management
are developing solutions to provide merchants,
like yourself, with extra protection because of
the financial burdens chargebacks and fraud can
bestow if ignored.
-----------------------------------------
Jim Conley II is the CEO/Founder of MerchantSeek.
MerchantSeek allows merchants from around the
world to search FREE for a Merchant Account
Provider that best fits their businesses needs
and budget. Visit us at http://www.merchantseek.com/
** SPECIAL NOTE **: If you have lost your
merchant account from excessive chargebacks and
are now on the MasterCard MATCH list because of
it there is help! Bank Card Law helps businesses get
their name off the MATCH list, help you obtain
another merchant account and educate you on how
to eliminate future chargeback episodes. Visit
Bank Card Law at http://www.bankcardlaw.com
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