As a merchant, you must maintain a healthy merchant account to maximize profitability. Chargebacks and disputes can be a significant threat to your business’s financial health, leading to lost revenue, increased processing fees, and potential fines. In the United States, credit card fraud and chargeback losses cost merchants billions of dollars each year. However, with some essential tips and tools, you can minimize the risk of chargebacks and disputes and manage them effectively when they occur.
Tip 1: Ensure Clear Communication
One of the leading causes of chargebacks and disputes is miscommunication between merchants and customers. To avoid this, ensure clear communication with your customers by providing detailed descriptions of your products or services, including pricing, shipping, and return policies. Respond to customer inquiries promptly and professionally, and address any concerns or complaints as quickly as possible.
Tip 2: Verify Orders
Fraudulent transactions are a common cause of chargebacks and disputes. To prevent them, verify orders by using fraud detection tools or manually reviewing orders before processing them. Look for red flags such as unusually large orders, multiple transactions from the same IP address, or shipping to a different address than the billing address.
Tip 3: Follow Card Brand Guidelines
Credit card companies have specific guidelines that merchants must follow to avoid chargebacks and disputes. Familiarize yourself with these guidelines and ensure that your business complies with them. For example, ensure that your customers provide their signature for high-value transactions, and make sure that your billing descriptors accurately reflect your business name.
Tip 4: Keep Accurate Records
Keeping accurate records of all transactions and customer interactions can help you manage chargebacks and disputes more effectively. If a dispute arises, having detailed records can help you provide evidence to support your case.
Tool 1: Address Verification Service (AVS)
Address Verification Service (AVS) is a tool that merchants can use to verify the validity of the card account and billing address. AVS checks the numerical portions of a cardholder’s address to ensure they match with the issuing bank’s records. By using AVS, merchants can reduce the risk of chargebacks caused by fraudulent transactions.
Tool 2: CVV/CVC Verification
The Card Verification Value (CVV) or Card Verification Code (CVC) is a three or four-digit code on the back of a credit or debit card. Merchants should always verify the CVV/CVC to ensure the customer is in possession of the physical card and reduce the likelihood of fraud. Fraudsters may have stolen the card information but not the physical card, so verifying the CVV/CVC can help detect fraudulent transactions.
Tool 3: Velocity Controls
Velocity controls are a set of rules that limit the amount and number of transactions allowed during a set period. By implementing velocity controls, merchants can detect and prevent fraudulent activity by detecting high-volume transactions or transactions that are outside the merchant’s normal pattern. Velocity controls can help reduce the risk of chargebacks and disputes.
Statistics on Credit Card Fraud and Chargeback Losses in the United States Credit card fraud and chargeback losses are significant issues in the United States. According to a recent report by the Federal Trade Commission, consumers reported losing more than $1.9 billion to fraud in 2019, with credit card fraud being one of the most common types of fraud reported. In addition, a study by Javelin Strategy & Research found that U.S. merchants lost an estimated $40 billion to chargebacks in 2020, with an average chargeback value of $114.
Conclusion
Chargebacks and disputes can be detrimental to a merchant’s business, but they can be managed effectively with proper communication, fraud detection, compliance with card brand rules and regulations. Ecommerce merchants who accept card payments online face a higher risk of chargebacks and disputes than merchants who process card-present transactions. However, by using Address Verification Service (AVS), always verifying the CVV/CVC, implementing velocity controls, and keeping accurate records, ecommerce merchants can minimize the risk of chargebacks and disputes, protect their business’s financial health, and maximize profitability.
