Best practices for Preventing Chargebacks

Learn about the best practices to protect against disputes and fraudulent payments

Disputes happen all the time for lots of reasons, but there are ways you can protect your business.
This article will help you explore different types of protection tools and take a look at how to prevent chargebacks and payment disputes before they happen.

Preventing chargebacks and friendly fraud is a complex challenge, but it is possible to lower your risk.

Some ways businesses can reduce their number of chargebacks

Best practice checklist

Clear and frequent contact with your customers can help prevent many of the reasons for disputes. By responding to issues and processing refunds or replacement orders quickly, your customers are far less likely to take the time to dispute a payment. Make your customer service contact information easy to find, keep customers updated throughout their order process, and provide updates about deliveries.

• Have clear return and refund policies
  Friendly fraud can be more complicated to combat than straightforward credit card fraud. Many chargebacks happen because customers would rather not go through the trouble of returning an item or seeking a refund. You can encourage customers to go through the proper channels for returning a product they don’t want—instead of just giving up and disputing the charge with their bank—by creating an easy, low-effort, accommodating return policy and communicating it clearly to your customers.
  
  If a customer is determined to get their money back after a purchase, you want to do everything in your power to make sure that reversal of funds happens through a refund rather than a chargeback. Even though returns, like chargebacks, involve returning funds to the customer (which isn’t what any business wants to do), refunds are much more business friendly than chargebacks.
  
  
• Keep online inventory updated
  If a customer is able to complete a transaction for a product that is in fact out of stock, you run the risk that the customer will initiate a chargeback instead of coming to you for a refund. Be diligent about keeping online inventory up to date.
  
  
• Be clear with product descriptions
  Another leading cause of chargebacks? Customers don’t believe the product they received matches its online description. Spending a little extra time crafting thoughtful product descriptions, in addition to including true-to-life photos or videos of the product, is a worthwhile investment that can contribute to a reduction in chargebacks.
  
  
• Manage shipping expectations
  Consumers will often initiate a chargeback if they think a product they ordered is lost in the shipping process or otherwise unlikely to arrive. You can help neutralise this risk by providing customers with clear shipping details, including:
  
  • Which shipping carrier you’re using
  • Confirmation and tracking numbers, along with links to where they can input the tracking information for updates on their shipment
  • Expectations about delivery time
  • Instructions on whom to contact if they stop receiving shipping updates or their package doesn’t arrive
    
    By providing your customers with important information like shipping times, tracking numbers, and the name of the shipping provider fulfilling their order, you empower them to pursue the correct channels when an expected item doesn’t arrive—instead of disputing the charge.
    
    
• Set a clear statement name
  Set a recognisable name for your statement descriptor through your account settings on your merchant dashboard. We recommend using your website domain or business name to make sure customers can easily identify their purchase when they look at their statement.
  

Before a transaction

Prioritise security 

Since chargebacks commonly occur as a result of credit card fraud, making security a top priority is the single most impactful thing businesses can do to minimise the volume of chargebacks.

• Reconsider your guest checkout settings
  Ask customers to connect and login using their verified accounts (Facebook/LinkedIn/ Google etc) when creating an account.
  
  
• Implement 3D- Secure (3DS)
  For extra fraud protection, 3DS (commonly known by its branded names such as Visa Secure, Mastercard Identity Check, and American Express SafeKey) requires customers to complete an additional verification step with the card issuer when paying.
  
  Typically, the customer's bank will send a code to the phone number or banking app associated with the card. The customer is then required to enter the code to proceed and confirm authorisation of the associated transaction. In other words, only legitimate cardholders will be able to authenticate 3DS payments.
  
  This additional verification step significantly reduces the amount of fraudulent and high-risk payment attempts, and so is an effective deterrent for card testers.
  For additional peace of mind, transactions that have been successfully verified via 3DS may be protected from fraudulent chargeback liability since 3DS may shift liability for fraudulent disputes onto the card issuer.
  
  
• Consider your checkout security settings
  Australian and New Zealand websites can often be targets for scammers located overseas as 3DS is not (yet) mandatory. Consider only allowing transactions from Australia and New Zealand if you do not typically service international customers.
  If you would like to discuss your options, please reach out to your customer success manager via [e-mail]
  
  
• Regularly update your software
  Failure to keep your POS software updated can lead to security vulnerabilities. Don't let this easily avoidable problem happen to you.
  
  • Find the latest versions of APRIL's ecommerce plugins here
  • Custom builds can find the integration guide here

After a transaction

Manually review high risk payments

Manually review high-risk payments and consider refunding suspicious payments immediately.

You can use our handy checklist to identify a suspicious payment:

• Has the billing address been verified by AVS? Does it also match the card’s country of origin?
• Does the billing address match the shipping address? 
  If it doesn't, look into the shipping address using Google Maps & Street View to find out more. A common tactic that fraudsters use is to have orders shipped to a freight or mail forwarding service or storage facility that forwards the goods to their actual location.
• Is the shipping address a PO Box?
  You may want to consider shipping only to verified street addresses
• Has the customer requested a change to the shipping address after the order was placed?
  You may want to allow order changes only to verified regular customers.
• Does the customer’s email address match the cardholder’s name?
  Often fraudsters will be using automatically generated fake email addresses
• Is this an order that the customer has asked to be expedited?
• Have multiple orders from different credit cards originated from this same IP address?
• Has this customer made many order attempts that have been declined?
• Is the order is much larger than normal, or is only for your most expensive products? 
• Do the products ordered have a high resale value?
• Is there anything else unusual in the order?
  Perhaps the products are out of season? Or an unusual combination is ordered?

If you’re unsure about a payment when you’re reviewing it, you should always contact the customer by phone or email. Contact information that doesn't belong to the customer or fails to work is a strong indicator of fraud.

Consider refunding suspicious transactions

You should immediately refund any payment you’re sure is fraud. If you know you’re going to receive a fraud dispute on it, you can save yourself the dispute fee, the increase to your dispute rate, and the potential loss of product by fully refunding the fraudulent payment.

Sometimes you might suspect a payment is fraud, but your suspicions fall short of absolute certainty. It may make sense to aggressively refund every charge that falls into this grey area.

You might want to pursue an aggressive refund strategy if any of the following apply:

• Order not yet fulfilled
  The loss of your product could be prevented by a refund. That is, if you haven’t already committed your product or service in some irreversible way by the time you suspect fraud, you might want to be more aggressive in refunding. Whereas if your product or service was irretrievable—for example, the product already shipped, or the service has already been used—it might make more sense not to refund, and to wait and see if it does turn out to be fraud.
• Excessive disputes
  Your recent dispute activity has been excessive by card network definitions, which could put your account standing with APRIL at risk or put you at risk of being identified into a chargeback monitoring program.
• Chargeback monitoring program
  You’re already in a chargeback monitoring program and need to exit the program.
• New or small business
  Your business has small enough payment volume (say, fewer than 100 payments per month) that one or two fraud disputes can have a very outsized impact on your dispute rate, even if you otherwise have little dispute activity.
• You know you are being targeted by fraudsters
  If you are currently being targeted by scammers such as card testers it may be wise to err on the side of caution and proactively refund any orders that cannot be verified

Delay shipping suspicious orders

Considering delaying shipment of physical goods for at least 24-48 hours works well since this gives legitimate cardholders time to report a lost/stolen card or identity to their banks which in response will raise a fraud flag to any charges and payments made using such card.

Customers that request overnight or expedited shipping should be considered higher risk. More and more merchants are offering same day or overnight shipping at an extremely high cost to identify fraudulent payments, since it’s less likely that a legitimate cardholder will pay such a high cost, but a fraudster would want the goods delivered to them the soonest and have no regard for additional cost. 

A thorough review of payments for expedited or express orders will give more details to confirm whether such payment is legitimate or not.

Consider enabling manual card verification check

If you do not want to utilise 3DS, but would like to have a way for customers to prove that they are the legitimate card holder and that they authorise the transaction, you can implement "Manual Card Verification".

Manual card verification is similar to 3DS, but the extra check is performed by the merchant's team after the order has been placed on the website. In this process chargeback liability is not shifted to the card issuer, but it does ensure that the transaction is authorised by the rightful card owner. You can reach out to your CSM via our support channel at [e-mail] if you have more questions regarding this option.