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ECommerceTimes.com

How Merchants Can Better Battle Chargebacks and Fraud

By Jack M. Germain
Nov 23, 2021 5:00 AM PT
how to prevent e-commerce chargebacks and fraud prevention

Cash flow concerns and fraud are going to be a menace to both retailers and consumers this holiday shopping season. One of the biggest shopping headaches this year will be a much earlier start to the chargeback cycles.

The chargeback period usually comes in January. This shopping season it will likely arrive a lot earlier. Much sooner, in fact, than many of the products delayed in shipping.

Consumers are shopping earlier to improve their chances of getting the desired items. If a merchant substitutes something else, shoppers will want a refund or return, helping to fuel this earlier chargeback period.

That is a big deal for merchants. They either have to go through a time-intensive charge dispute process or end up swallowing the loss themselves. But merchants can take steps now to stay ahead of holiday chargebacks.

The E-Commerce Times discussed these holiday shopping difficulties with Accertify, an American Express company that provides fraud and chargeback solutions to 40 percent of the top 50 merchants around the world.

Supply chain issues are not showing any sign of improving, noted Jeff Wixted, vice president of marketing and client solutions at Accertify. Unfilled orders will cause more canceled orders, disputes, and unhappy customers.

"Due to supply chain issues and parts/product shortages, many customers face constantly changing delivery dates, out-of-stock items, and similar frustrations. Coupled with overwhelmed call centers, many customers find it easier to dispute a charge versus trying to contact the merchant to cancel the order and seek a refund," Wixted told the E-Commerce Times.

Holiday Survival Tips

Merchants can take several steps to avoid an increase in chargebacks and potential fraud instances, advised Wixted.

Pick your battles. As Covid-19 pushes more purchases online this year, it is even more important to prepare for the holiday chargebacks to come. So remember, not all chargebacks are created equal.

Ask these critical questions when preparing for higher chargeback volumes:

  • Do you have proof that will support your claim that the dispute is invalid?
  • Have you developed and posted clearly defined product descriptions and policies that explain how you conduct business with customers?
  • Is it possible that the chargeback is a valid claim?
  • Would it be extraordinarily difficult for you to prove the dispute is invalid?

Have a plan. When disputing a chargeback, a plan can make the process run more smoothly and efficiently. Perhaps the most arduous of all tasks in dealing with chargebacks is the time merchants spend identifying and tracking down documents to build a proper case. Having a process to choose which chargebacks to dispute will save you time and money.

Try these resolution tips. Specific items need to be addressed in a chargeback situation:

  • Ensure your documentation considers how your business has adapted delivering goods and services during difficult shipping and fulfillment times.
  • Map out your chargeback process and make sure your staff is trained.
  • Ensure all documents are easy to obtain and provided to the necessary parties.
  • Consider partnering with a solution provider to assist with managing the process.
  • Use social media. Sharing photos of gifts received is a common occurrence on social media sites. Use social media to your advantage when fighting back against friendly fraud. Check Facebook, Instagram, Snapchat, and other social media sites to see if there is any evidence in your favor.
  • Update your website to ensure you are adhering to best practice guidelines and policies.
  • Ensure your communication reflects the potentially altered service/goods' delivery. The clearer you are in your statements, the less likely you are to get a chargeback.
  • Post shipping and return policies visibly, so your customers are clear on expectations.
  • Employ a click-to-accept procedure during checkout requiring customers to indicate their understanding.
  • Be sure to use the business name on your charge that is clearly recognizable to your customers.

Deep Dive for Retailers

Wixted offered various precautions retailers can implement and tools they need to mitigate the impact of the expected chargeback volume increase.

E-Commerce Times: How are other factors influencing the increase in fraud and customer chargebacks this year?

Jeff Wixted: Economic uncertainty, like times of high unemployment, generally leads to an increase in fraud. We are seeing both first-party and third-party instances.

Jeff Wixted, Accertify
Jeff Wixted, Accertify
VP Marketing and Client Solutions
In first-party fraud, a customer exploits the shipping and fulfillment delays. These abuses may be reconciled as non-malicious or one-time occurrences. People who claimed they never received a good or service but really did and seek a full refund or free replacement are still committing fraud.

Third-party or hostile fraud are cases where professional cybercriminals run a "refund-as-a-service" businesses to help people fraudulently get money by claiming they did not receive their item or service. In return, the service gets a cut of the refund.

Why do charge dispute processes put merchants at a disadvantage?

Wixted: So many factors make chargeback management a costly, complex, and time-consuming effort. Regulations change a couple of times per year. Each network has its own requirements and timelines. So it can be difficult to keep it all straight. Make sure you submit the necessary evidence to give you the best chance to win.

The burden of proof rests with the merchants. So merchants need a solid understanding of what compelling evidence is needed for various chargeback reason codes. Having it will help increase their win rates this holiday season.

Can merchants rely on insurance coverage to reimburse them for chargeback losses?

Wixted: Yes, many fraud prevention providers offer an insured solution to reimburse merchants for the cost of fraudulent chargebacks. These fraud chargebacks still count towards chargeback threshold/ratios with the banks. Merchants' ratings can go down and they will pay higher fees if they exceed the threshold.

For non-fraud chargebacks, insurance will not apply. A chargeback platform can help retailers consistently win these disputes. We are seeing such an increase in supply chain and even refund abuse-related chargebacks for consumers not receiving the goods and services and disputing the charge instead of working with merchants to get a credit.

How can merchants implement various precautions to be better protected from cyberattacks?

Wixted: So many merchants lack the time or resources to handle chargebacks on their own. Partnering with a solution provider to help with disputes and can increase win rates.

Merchants can take steps to be better protected. For instance, proactively protect and monitor the front-end at the time of account creation or login to keep customers' accounts safe. Technologies like device intelligence and behavior biometrics can be valuable assets to seamlessly collect, assess risk, and not disrupt the customer experience.

Also, have each aspect of the customer journey protected. This provides insights into who is creating and accessing accounts while also protecting payments and transactions.

Are there different plans/tools for SMBs and larger businesses?

Wixted: Solutions like fraud prevention or chargeback platforms can benefit both SMBs and larger enterprise merchants. The volumes and resources will vary for each, however.

SMBs may need a simpler tool or can use off-the-shelf tools from third-party providers. Those can often fit their needs as the fraud attacks may be less sophisticated. Larger organizations face more complicated fraud attacks and have a higher volume of attacks. They often need to find more configurable tools.

What types of tools should merchants have in place to mitigate the impact of the expected chargeback volume increase?

Wixted: Chargebacks are symptoms of a larger problem. If you do not solve the issue at its onset, you will continue to run into challenges and be stuck in a constant reactive state. Merchants need to take the information from the disputes they receive and feed it back into their risk models and/or fraud prevention platforms to ensure they continually learn and improve.

What should an effective chargeback management solution help vendors do?

Wixted: The solution should help vendors achieve four solutions: avoid, assemble, analyze, and adapt.

Avoid chargebacks with dispute deflection, real-time responses, and chargeback alerts can stop chargebacks from occurring.

Assemble automated responses to significantly reduce the manual effort required.

Analyze data to help merchants determine any operational processes or fulfillment issues to blame for increased chargebacks. Additionally, integrating valuable chargeback data into a fraud prevention application can further help provide critical feedback loops and mitigate fraud at the time of payment.

Adapt network policies to changing regulations and constantly morphing fraud attacks as well as supply chain and fulfillment changes. Also, have a platform that can quickly adapt and manage change.


Jack M. Germain has been an ECT News Network reporter since 2003. His main areas of focus are enterprise IT, Linux and open-source technologies. He is an esteemed reviewer of Linux distros and other open-source software. In addition, Jack extensively covers business technology and privacy issues, as well as developments in e-commerce and consumer electronics. Email Jack.


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