Welcome back to part two of our blog about chargeback fraud and friendly fraud. In part one of this series we established what the difference was between both of these schemes. We also looked at a few effective tools and tricks that can be used to fight fraud.

There are many merchant types that are more prone to chargeback fraud than others. However, merchants with a recurring order model tend to suffer more than others in the high-risk space. One example is gaming merchants. They often see chargeback fraud from users who consume games and then call their bank claiming they did not use the service. This has become a thorn in the side for gaming companies. Businesses that offer soft games (be it via mobile or desktop), and more intense online casino gambling tend to endure a lot of this type of fraud.

Another category of vendors that incur a lot of chargeback fraud is subscription merchants. Merchants with a recurring billing model experience a high rate of chargebacks from users, particularly after the holiday season. Some might classifythis as buyer‘s remorse. However, it is chargeback fraud when the customer’s intent is to happily consume your product or service and then get refunded via theirbank.

To read part one of Beat Targeted Chargeback Fraud and Friendly Fraud, click here.

Here is a look at several more tools merchants can use to combat this type of high risk activity.

Fraud detection software

There are several ways to combat chargeback fraud. The first is to use third-party tools like fraud detection software. A platform of this nature can analyze, detect and prevent harmful transactions from happening. Note that there is no 100% guarantee of stopping fraud, but a tool like this can identify many anomalies that human resources might not catch. Moreover, this is not a set it and forget it type of software. You must keep tailoring it to support the needs of your business model, technical environment and target countries you serve.

CRM and gateway tools at your fingertips

Some merchants may not realize it, but their CRM and gateways have fraud prevention features that are going unused. Some platforms allow you to block countries, create a customer blacklist, add velocity rules and even automatically decline certain combination of digits in card numbers. A feature like this is really convenient. It can help block countries you don’t ship to or prevent a customer from using multiple credit cards over a brief period of time.

Collect customer evidence

Collecting evidence on all customers is an excellent way for subscription merchants to prove fraud has occurred against them. For example, take screenshots of internal logs with time and date stamps. This can prove a user connected to a specific fraud was logged into your system. This activity should be used as evidence proving that a customer knowingly paid for and actively consumed your product. This is extremely pertinent when disputing with Visa and MasterCard. Just as loss-prevention professionals in restaurants and physical retail stores show proof of chip payment or video of in-person credit card purchases, merchants with rebills must follow similar techniques.

Finally, some customers abuse their chargeback rights by merely contacting their bank. Make sure to keep recordings of phone conversations with your customer service agents in the event a buyer calls your support phone number. This can demonstrate they agreed to buy or even confirm a refund is or was issued. 

3D-Secure guards against fraud

The tool 3D-secure (3DS) remains a great guard against fraud when implemented via a checkout page. This is in spite of it is not being the most popular among high-risk merchants. The tool has vastly improved over the years. It has also eased fears about low conversions. Visa and MasterCard were made aware of many pain points 3DS caused. However, they enhanced this line of defence against fraud. It is now embraced much more than in the past and they even have implementation guides to help merchants adopt this tool.

Integrating 3DS into your order processing will reduce your chargebacks significantly. The reason is that it authenticates an order with the potential buyers themselves. Consequently, risk is reduced and merchants are not left with little liability. There are also other great benefits when adopting 3DS. To learn more, click here.

Secure shipping

High-risk merchants that ship tangible products frequently suffer the worst chargebacks and credit card fraud. It is hard to recover items when the order was placed with a stolen credit card. Consequently, merchandise will likely be lost to the individual that committed the scam, unless you can cancel the order before it is shipped. To counter this, vendors should set some ground rules for their operations.

Foremost, do not ship to high-risk countries where you have no chance of fighting a false order. For example, let’s say a US-based nutraceutical merchant has a registered US company with a physical office and staff under their corporate umbrella. That merchant has a great chance of getting their funds back by properly disputing a chargeback fraud claim if it was committed by someone residing in the US. However, if the fraudster lives in Mexico or India and is receiving the package at an address in those countries, recovering funds against the suspect will be difficult.

Do not authorize sales from or ship to foreign locations. It’s the best way to prevent this type of fraud in foreign countries where you have no presence. In this case, using fraud detection software can complement your efforts. Orders can be flagged based on rules you set to identify certain IP address information.

Before delivering products to international countries, warn your customers of shipping delays. They should be aware if there are any customs or duty to be paid. Furthermore, be aware of import laws as some legal products in the US cannot be legally brought into other countries. For example, cannabis laws are still not clear in many parts of the world. Therefore, it is significant to check that your customer can actually receive products of this nature purchased from your website.

Next steps for fighting chargeback fraud and friendly fraud

As you can gather, fighting friendly fraud and targeted chargeback fraud requires effort. We understand that not all merchants can afford to pay the costs associated with these extra tools. We also know not all companies have internal resources to combat these risks. If you are a high-risk business in need of some outside help, our team can assist you.

Call DirectPayNet to help you reduce friendly and chargeback fraud and get approved for your next merchant account.