By Andrew Reszka, Regional Head APAC
The digital revolution has provided businesses with an abundance of ways to sell, but it’s also created unprecedented chargeback and fraud risks for merchants. In 2016, domestic Card Not Present (CNP) fraud increased by 38 per cent to $136.7 million, and now accounts for over 70 per cent of fraud by value on Australian cards. This has serious implications for merchants, who need to know what to look out for and how to best combat chargebacks and fraud.
With so many changes afoot, and the need to make online payments as fast and frictionless as possible, it’s easy for merchants to overlook this unpredictable and growing cost. But chargebacks can be a significant financial burden to bear, for any business. Which is why it’s vital to understand the basics of chargebacks and how initiate the chargeback process.
What Is a Chargeback?
At first, chargebacks may seem overly complicated. This is largely due to the amount of misleading information found online. However, the rising prevalence of online payments will see a corresponding increase in chargebacks (both fraudulent and non-fraudulent), which makes it all the more important to understand what they really are.
Chargebacks occur when a customer contacts their credit card-issuing bank and asks for a reversal of a charge on their credit card. This process was initially introduced as method of consumer protection due to concern over the ease of credit card theft and fraud. For example, a valid chargeback claim might occur where a customer discovers their credit card details have been compromised and that charges were made to their card without consent.
Now, in 2017 – with the ease of mobile technology, ecommerce, pay-as-you-go, digital gift cards, and virtual debit card payments – consumers have become savvy, and many have learnt how to cheat or beat the system. In other words, there’s been an increase in the number of consumers making fraudulent chargeback claims against merchants to benefit from a broken and time-consuming chargeback process.
Of course, not all chargebacks are fraudulent. However, it is helpful to understand why chargebacks occur so that you can learn how to prevent them more effectively.
Why Do Chargebacks Happen?
The most common underlying reason for a chargeback is that the customer does not recognise the information on their bank statement. This can be a result of simply forgetting about making the purchase or being unable to identify the merchant’s billing descriptor.
Here are four main reasons why customers might file a chargeback:
• Order item not received: One of the most common reasons for chargebacks is when an item is not received but is still charged to the customer. This can happen when a delivery is made without requiring a signature, the customer entered incorrect address details, or the item was left at the front door and was stolen.
• Fraudulent credit card use: Where the customer’s credit card details were stolen and fraudulent transactions were made on their card. The card issuing bank frequently discovers these charges before the customer.
• Return not processed: When a customer returns a product but the charge was not refunded on their credit card, the customer will often file a chargeback. This is a common occurrence, typically due to miscommunication between customer service, billing, and sales departments.
• Technical issues: With e-commerce, phone orders, email transactions, or mobile payments, there will be errors in processing, charging, and authorising customer credit cards. Technical issues can result in the customer being charged twice, or a repeat transaction being made without authorisation.
In these chargeback instances, the merchant is solely responsible for refunding the customer and paying the chargeback fees of the issuing bank as well as their own bank charges. This is where and how the costs of chargebacks can add up, making it important to do what you can to prevent chargebacks.
Of course, the reasons that a customer gives for a chargeback may not be genuine, in which case you could be dealing with a case of fraud. As we see an increase in online and CNP transactions, we’re also witnessing a correlating increase in credit card chargeback fraud and theft. Understanding chargebacks and doing what you can to prevent them in the first place is the best course of action that you can take towards protecting your business from the cost of these claims.
The digital revolution has seen chargebacks grow into a large and unnecessary cost for merchants in Australia. Chargebacks needn’t be an accepted cost of doing business. There’s no point scrambling to create a seamless online experience for your customer if it results in a clunky, time-consuming, and frustrating chargeback. By working to prevent chargebacks, you can spend less time worrying about (and paying for) chargebacks and focus on running your business.