The number one way online merchants are impacted by fraud is via the credit card and bank account charge-back. This takes place when a buyer asks for a charge to be removed from their account due to one of two reasons:
1. Their card was stolen or used without their permission.
2. The customer isn’t happy with the quality of the goods you shipped, or feels you did not live up to your obligations in delivering the product or service.
Unfortunately, the occurrence of charge-backs is at an all time high and shows no sign of letting up. Where the life blood of an online business is their payment system which almost always involves accepting credit or debit cards, this problem has the potential to ruin a business in relatively short order. To be sure, there are honest people who use this process because of legitimate reasons. However, there are also many who use this process to scam business owners out of money that is rightfully theirs. When a charge-back takes place, it’s quite possible that the merchant won’t even get their merchandise back, so not only is the merchant out the money they were paid for a product, but they no longer have the product either!
According to a report by Merchant 911, over 90 million credit cards were stolen in 2007. 90 million! This resulted in nearly 4 billion dollar loss for e-commerce businesses. Online businesses don’t have the ability to verify or authenticate a cardholder’s identity, so they are far more susceptible to problems with charge-backs. As mentioned earlier, you’ve got the issue of the lost money from the sale, the lost merchandise, the lost fees your processor charges you for the transaction as well as the charge back and any shipping costs that you’ve incurred to get the product to the customer. While this all sounds pretty bleak, there are a number of basic security strategies that you and your employees can employ to cut down on this most troubling of issues.
My top 8 tips for avoiding customer charge-backs include:
1. Verify Addresses
Be sure you are using the Address Verification Service (AVS) that most credit card processors provide in their credit card software interface set ups. With most systems, you can dictate what happens with orders that have shipping addresses that don’t match billing addresses. Anything from rejecting the order to putting it on hold so you or a staff person can verify the address with the customer. Whatever you do, don’t turn this option off. I’ve caught many fraudulent orders via the AVS system.
2. Be sure to ask for the CVV2
As with AVS, be sure you keep this option turned on as well. This option requires that a customer enter in a “card verification value” on the back of the card – usually 3 or 4 numbers. The customer must have the card in hand and can not proceed with the order unless they do.
3. Be sure to process only approved sales
If a transaction is declined – for whatever reason – DO NOT process it. Many feel the declined transaction was an error and process the transaction anyway. Don’t do it.
4. Check out email addresses
Always be sure to require and email address from every customer. If an email address looks odd, don’t be afraid to call the customer to verify the address before processing the order.
5. Watch out for excessive orders
While it may be exhilarating to get a huge order, beware! Buyers who use stolen credit cards will often purchase extremely large numbers of of the same product. Don’t process any out of the ordinary larger orders until you are able to verify the order with the customer by looking up the phone number for the billing address and calling them.
6. Communicate with your customer
If you experience a back order or other delay in shipping an item, call or email your customer to let them know and give them the option of cancelling the order and getting a refund. This will be far cheaper than having to deal with a charge-back.
7. Keep proper records
Be sure to keep printed copies of all online order. In addition, be sure to retain all email communication from customers regarding their purchase of goods from you. This information could come in handy when fighting a charge-back.
8. Be certain to adhere to merchant account policies
No matter who you use for a credit card processor – a bank or PayPal for example – be sure you are aware of their charge-back policy and be sure to follow their recommendations for preventing and dealing with charge-backs.
Accepting credit cards is one of those necessary evils of doing business online because it’s the easiest and quickest way for your customers to pay you. But as shown in this article, the process can be fraught with risk. By following the 8 tips I’ve provided above, you should be able to significantly limit your exposure to this most troubling aspect of accepting credit cards in your business.
