While your customers have the legal right to request a chargeback in certain cases, scammers can use it as an opportunity to make money by defrauding you. In e-commerce, it is one of the most damaging frauds for merchants and retailers. Read the article to find out what protection tools exist and understand which fraud prevention solution to choose.
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Chargeback Fraud Proactive Measures
Fraudsters file a claim with the appropriate issuing bank based on the customers’ right to get their money back. Financial organizations in such matters tend to decide cases in favor of buyers. If you do not have special software, you will find out that the so-called client has requested a chargeback only when it becomes a dispute, and your merchant account will be charged a commission for making a return. After that, you will have very little time to prove that you, on your part, have fulfilled all obligations.
Banks and other financial institutions limit the chargeback number, and on average, there should not be more than 1% of all payments. If you exceed this figure, your account may be frozen or blacklisted. To reduce the number of such requests from real customers, you can improve your service, make simple and understandable descriptions of goods, and so on. Fraudsters should be dealt with in more reliable ways.
1. Credit Card Verification
On your platform, you should use modern methods of verification and confirmation of the cardholder’s identity. To carry out CNP operations, you need to:
- Apply 3D Secure protocol;
- Require CVV2 or CVC2 codes;
- Check the card expiration date;
- Use Address Verification Service (AVS) to confirm the client’s address.
Since all this information is sensitive data, you should protect it from theft. Therefore, along with the listed requirements, you need to use SSL/TLS protocols on your site and be PCI-DSS compliant.
2. Chargeback Alerts
Special fraud protection services can send you notifications when a client files a claim for a chargeback. This way, you will be able to find out much earlier about the customer’s dissatisfaction or scammers’ actions. It will allow you to contact the buyer directly to resolve the dispute without chargeback or take appropriate safeguards if it turns out that the claim came from an unreliable user.
3. Device Fingerprinting
This technology analyzes visitors’ devices and identifies schemes, connections, and patterns in actions to separate real buyers from scammers. You can install scripts on the pages you need, for example, a payment form, and the algorithm will evaluate the reliability of the smartphone or laptop user and help you draw the right conclusions.
4. Real-Time Monitoring
Any list of preventive actions should include looking for suspicious activity on the site or platform. It can be, for example, unusual orders like a large number of items, several small purchases in a short period, and so on. In general, anything that falls under the term “non-standard” should initiate additional verification from your software.
5. KYC Solution
Using such a system allows you to automatically (in a matter of seconds) check the history of a new client and draw conclusions about their trustworthiness. Know Your Customer solution checks various lists (for example, sanctions or RCA), makes an additional, deeper check if necessary, or rejects suspicious payments.
Modern Technologies for Business Protection
There are many ways to reduce the likelihood of chargeback fraud. An integrated approach and the use of several tools will let you really minimize the percentage of illegal transactions and thereby protect your business and customers. For e-commerce and high-risk businesses, in particular, it is essential to know how to secure themselves.