Four Tips to Get Chargebacks Under Control

As an online business owner, chargebacks are part of your day-to-day life. But that doesn’t mean you have to accept them and move on. In fact, there are a lot of ways you can reduce chargebacks automatically, without having to respond to every single case by hand.

First, let’s talk more about how chargebacks work and are classified. Chargebacks are typically classified into two distinct types: friendly fraud and criminal fraud. Friendly fraud is usually just buyer’s remorse or forgetfulness. Sometimes, it’s denial — “there’s no way my husband was looking at those kinds of sites!” Either way, it’s not organized, and not always intended maliciously. A customer simply wants their money back, and they’ve taken measures with their bank to get it.

Criminal fraud, on the other hand, is the exact opposite. Someone wants to get something for free, or are after your money, and they are pursuing it in very creative, underhanded ways. They might even be sending a huge volume of transactions your way to collect a referral fee, then reversing all the transactions. They might even be competitors of yours trying to drive up your chargebacks, decrease your margins, and cut into your cash flow.

This isn’t paranoia — it’s the reality of running a high volume online business. You can either roll over, or you can fight back. Luckily, there are very effective ways to significantly reduce both types of chargebacks. You’ll never get to zero, but with the right combination of strategy and technology, you’ll be able to hold on to more of your hard-earned revenues.

Let’s start with criminal fraud:

The game here is to prevent criminal fraud before it happens, at the time of the order. You can significantly reduce your chargeback percentages by using the data provided at the time of purchase and automated scoring methods to prevent high-risk orders from being accepted. Here are some of the key data points you’ll want to look at for every transaction:

• Transaction velocity: How many times has a similar fingerprint (name, location, credit card number, IP address, etc.) been used to attempt an order in the past 5 minutes? Past hour? Past 24 hours? Past week?
• Transaction amount: How much was the transaction for? It’s not always the high-dollar transactions that are a higher risk for fraud.
• Transaction attribute consistency: Was the order placed from an IP address in Hong Kong, but with a card issued in the United States and a shipping address in Africa? When something doesn’t look right, it usually isn’t — and looking for big inconsistencies like these is a great way to catch fraud before you fall prey to it.

When we talk about transaction fingerprints and attributes, there are a handful of key identifiers you should pay particularly close attention to:

Device fingerprints: Each computer and browser combination has its own unique fingerprint. Even if a fraudulent buyer manages to change or mask their IP address between transactions (through VPN services and advanced re-routing technologies), their device fingerprint will stay the same.

Why are device fingerprints important? It may be normal, depending on your product offerings, for a customer to make multiple purchases within a 7-day period — but it would be highly abnormal for the same device fingerprint to make purchases for 7 different customers within a 7-day period. Spot that, and you can stop fraud.

Bank identification numbers (BINs): Typically, this is the first six digits of a credit card account number. For example, 464018 is a Chase Rewards Visa Card issued in the United States. By knowing what the numbers mean, you can look for inconsistencies.

GeoIP: If the geo-location determined by the IP address of the user is significantly different from their shipping and billing information, you may want to pay closer attention.

Billing and shipping countries: Make sure these tell a similar, consistent story to the other data you have collected, like GeoIP and BIN.

Transaction response: Even after you approve an order, it’s not too late to void it. If the same card attempts another order a few minutes later and you receive a response back that the card is stolen, you should take action to void any previous charges and prevent any future ones. Also, make sure you are using AVS (address verification service) and CVV match checks (the 3 to 4 digit card verification value) for all your transactions.

Finally, consider the lead