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What is Credit Card Chargeback Fraud?

TransUnion
Blog Post01/01/2020
Business Fraud and Identity Management
What is Credit Card Chargeback Fraud? image

Credit card chargebacks have always been an issue for any merchant as it’s just one of the perils of accepting electronic payments. However, as shoppers turn to the internet for many of their purchases, it's become commonplace to deal with these claims. The merchant must do a great deal of research and paperwork to attempt to keep the revenue from the goods or services already dispersed. With so many credit card numbers floating around online, there is a cause for alarm. Chargebacks are not something that your business can afford to ignore.

Many people have found that if they buy expensive items from a merchant, they can dispute the claims to get a refund. The beauty is they get to keep the product or services in most cases, and they get their money back too. Sometimes, the customer is justified in receiving both, but typically these charges are fraudulently based because the patron had no intentions to keep the item without a dispute. Credit card chargeback fraud is on the increase, and it’s one of the most detrimental ways to hurt a company’s revenue.

Fighting for Revenue Earned

In most cases, a buyer will call the customer service department if they have a problem with products or services purchased. The customer service team will investigate and see if the package was delivered or if there is an issue that needs to be addressed. Most claims are handled expertly by this in-house department to ensure the shopper’s satisfaction.

Unfortunately, not every buyer goes through the proper customer service channels when they have a problem, and this is especially true of those who have fraudulent intentions. Cyber fraud is easy to commit these days because many merchants don't respond to the chargeback requests. The credit card company gives you a chance to dispute the reverse of charges. However, many people feel it's a loss and write it off without even acknowledging the forms. Studies show that merchants win 40 percent of traditional chargebacks, and they win over 56 percent of these claims when there is fraud involved. So it’s worth taking the time to do the paperwork.

Credit Card Chargeback Ratio

You need to respond to these requests because it hurts your chargeback ratio. What is the chargeback ratio? Well, it's a number that is figured using the total transactions versus the number of claims. Additionally, the more chargebacks that are filed against your company, the higher your ratio will be. The national average is about 1 percent. If your rate goes above this number, then you will pay higher processing fees on all your electronic payments.

Credit Card Chargeback Dispute

Those who are committing cyber fraud often know the companies that are easy targets. They do their homework and find out what businesses don’t respond to their requests. Also, they probably check out as a guest and, there is no way to trace the transaction back to them personally. They can use any credit card they get their hands on, which means more fraud for merchants. The only way you can protect yourself is by providing proof of a valid sale.

Can you show the order on your system and prove it was delivered to the address on file? Anything you can use to verify that the order was sent to the customer is helpful. Your company probably has e-receipts for transactions done online, while it’s not a physical receipt with a signature, it will work.

Accepting credit cards is part of today's business world. However, to protect your company from credit card chargeback fraud, you must be one step ahead of the unsavory shoppers. Learn more about fraud prevention solutions.

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