If your company accepts credit card payments, it is essential to be aware of the risks that chargeback poses.
Chargeback, or reversal as it is also known, is a process by which customers can dispute a charge on their credit card statement and receive a refund from the merchant. This process has become commonplace in recent years as e-commerce grows every year.
While chargebacks can be beneficial to consumers, they are wreaking havoc on retail businesses due to fraud that occurs with improper use of chargebacks. According to a
report by ClearSale
, over the year 2020, the amount of fraud attempts in e-commerce increased by 53.61% compared to 2019.
If your business is experiencing the excessive number of chargebacks, it may be falling victim to fraud. This can cause financial losses, lead to a breakup with the credit card companies, and damage the relationship with your customers.
So how to protect your business from chargeback?
Why has accepting credit card payments become so strategic for companies?
Companies are increasingly looking to accept credit card payments to increase their customer base and improve their cash flow. This is due to the ease and safety that this medium offers.
In addition, the use of a credit card is considered safer than other types of payment, because the customer only pays for the product or service after receiving it. If there is a problem, he can request a chargeback from his card provider.
But what many companies do not know is that this chargeback process can be extremely damaging to them, both financially and in terms of reputation.
Chargeback and the risk of fraud
Fraud through the use of chargebacks is quite common and can cause significant losses for companies.
The payment process works as follows: The customer makes a purchase and sends the financial data to the merchant. After the transaction is confirmed, the product is shipped to the customer and the payment money is transferred to the merchant. If a chargeback occurs, the money is returned to the customer, causing financial and organizational losses for companies.
This resource is foreseen in the Consumer Law (Law 8.078/90), which guarantees the return of money to the consumer in cases of undelivered products, services not rendered or delivered with defects, among other hypotheses.
However, chargeback is growing as a way to defraud companies. This process happens when a fraudster requests the money back from the financial institution, after having made the purchase. Generally, this type of fraud occurs when the criminal receives the product and asks for the purchase money, but does not return the product.
Another characteristic form of chargeback fraud is the non-recognition of the purchase made at the merchant. In these cases, the fraudster claims an improper purchase as a result of, for example, a possible cloning of the card. The shopkeeper does not receive the product, but is also obliged to return the money.
The dangers of chargebacks for businesses
Chargebacks can be extremely damaging to the company – both financially and in terms of reputation. Let’s take a closer look at the dangers of chargebacks:
The financial dangers of chargebacks
There are processing fees associated with chargebacks. In addition, companies can lose the sale completely if a customer makes a successful chargeback. This can be detrimental especially for small businesses that rely on every sale to stay afloat.
Frequent chargebacks can lead to the closure of the merchant account. This means, in some cases, the end of the business, as the merchant can no longer process payments.
Finally, if a company is involved in fraud or other dishonest practices, it may be subject to fines by the credit card companies.
How to protect your company from Chargeback fraud
Key steps to prevent fraud include:
- Clearly state your return policy on your website and in your catalogs/marketing materials. Make it easy for customers to understand their rights and how to initiate a return or dispute a charge;
- Train your staff on how to handle customer inquiries and disputes. They must be equipped to handle any situation that arises;
- Use fraud prevention tools such as Address Verification System (AVS) and Card Verification Value (CVV) checks to reduce the risk of fraudulent transactions;
- Have an efficient dispute process to handle individual chargebacks. This includes responding to chargeback notifications on time and providing all the necessary documentation to dispute the chargeback;
- Monitor suspicious activities. If something seems wrong, contact the customer to confirm the transaction. If there is no response, block the account and notify the authorities.
If your company does not have an efficient dispute process, you may be penalized with a chargeback fee. Hence the importance of monitoring suspicious activity, training your staff, and using fraud prevention tools. With these measures, you can reduce the risk of fraud and avoid chargebacks.
PayShield is an important technological resource in the fight against Chargeback Fraud
Thales’ fifth generation payment HSM, payShield 10K provides proven security features in critical environments, including transaction processing, protection of sensitive data, payment credential issuance, mobile card acceptance, and tokenization.
Similar to its predecessor payShield 9000, the new version can be used across the global ecosystem by issuers, service providers, acquirers, processors, and payment networks.
payShield 10K offers several benefits that complement the previous versions, showing Thales’ commitment to the continuous improvement of its products.
In practice, the new version:
- Simplifies deployment in data centers;
- It offers high resiliency and availability;
- It provides the broadest card and mobile application support in a timely manner;
- Supports performance upgrades without hardware change;
- Maintains compatibility with all legacy Thales payment HSMs.
payShield 10K ensures payment security
With payShield 10K you are assured that your company meets the highest security standards in the financial industry.
The fifth generation of payment HSMs from Thales, Eval’s partner company, offers a suite of proven security features in critical environments, in addition to transaction processing, protection of sensitive data, payment credential issuance, mobile card acceptance, and tokenization.
The payShield 10K solution can be used throughout the global payments ecosystem by issuers, service providers, acquirers, processors, and payment networks, offering a number of benefits.
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