Problems with Chargeback? Avoid the Most Common Reactions

Coordinated fraud attacks are more and more common every day. In fact, the increasing sophistication of these attacks allows fraudsters to find the loophole in the verification system and exploit it with constant hits, resulting into transactions that blend in as genuine. By the time merchants realize that their web stores have been under attack, the accumulation of fraudulent transactions totals considerable loss, including the direct chargeback cost (the value of the transaction) and all the associated costs.

When merchants understand the unmanageable costs of these fraud attacks, our experience says that the following are the most common reactions amongst merchants to reduce the amount of fraudulent orders. However, as we point out, these attempts can be detrimental for merchants’ businesses in the long term.

1. Setting up restrictions rules

These rules might vary from restricting the number of orders per week or day that a customer can make in the web store to the maximum amount that customers can spend. As a result, merchants automatically block those orders that do not comply with the restrictions. Even though this approach might reduce the number of fraudulent chargebacks initially, it could also block genuine customers.

2. Request additional information

Requesting information such as the proof of residence or identity becomes an integrated verification step when chargebacks accumulate. This reaction is particularly normal in merchants dealing with intangible goods that require nothing but an e-mail address for delivery. Besides the fact that customers can refuse to disclose what they probably consider sensitive information, especially during a first time purchase, and that they can take their orders to a competitors’ website, the question is: how can merchants know that the information provided by customers is real? With identity fraud in the rise, it is possible for fraudsters to make orders with false or stolen, yet reliable, information.

3. Multiple Identity Checks

In the case of merchants with high volumes, setting up identity checks before the checkout page is relatively normal in order to confirm the buyer’s identification. Few merchants realize that this adds friction to the purchase process and that it will increase the cart abandonment rate, negatively affecting the sales volume.

4. Reducing Payment Methods on the Web Store

Once merchants analyze the fraudulent transactions and find out which payment method concentrates the highest chargeback volume, it is relatively normal to divert customers to other payment methods perceived as less risky, or even stop offering that particular method. Although shutting down certain payment methods perceived as risky, such as credit cards and PayPal, will reduce the general chargeback rate, reducing the number of payment methods offered on a web store will also bring forth a reduction in sales.

Even though it is important that merchants are aware of the origin of the attacks and the threats to their businesses, we believe that imposing restrictions in terms of orders and payment methods or creating friction with customers can cause more damage in the long run than fraud itself. They key to minimize fraud does not lie in the restrictions or the payment methods, but in the verification system. A comprehensive, reliable fraud verification system that focuses on increasing your acceptance rate as much as it focuses on protecting your business against chargeback and fraud is essential to achieve business growth.

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