My Merchant Account Blog

Some Ways to Help Internet Merchants Reduce Fraud and Chargebacks

Sunday, January 15, 2006

Chargeback can occur for a variety of reasons. From the simple "I didn't do it", to the package was not received, or maybe it was not what I expected. Ten common reasons that chargebacks happen:

1. Failure of merchant to respond to retrieval request.
2. Cardholder was billed more than once for the same transaction.
3. Cardholder denies making or authorizing a transaction.
4. Failure of merchant to follow correct procedures in completing the sales slip at the point-of-sale.
5. Account numbers don't match.
6. A credit or refund was not properly processed.
7. Failure to obtain proper authorization.
8. A card was used either before or after its valid date.
9. Merchandise or service not received by cardholder.
10. Cardholder disputes quality of merchandise or services.

The key to preventing most chargebacks is communication. Keep the lines of communication open between you and your customer. When the customer is on your check out page, put the name of your business by the submit button. This name should be the same as what will appear on the consumer statement from the issuing credit card company. Since most credit card companies offer online access and people can review this at any time, it is important to know what company is charging their credit card.


If your phone number does not appear on the credit card statement, contact your agent or your merchant account provider today and request it be placed on there. This way, the customer sees your number and this will increase your chances of them calling you - whether the call might be "What company is this" or "It was not what I expected".

Depending on the reason of the chargeback, you might get a retrieval request. This request is from the issuing bank. Some merchant account providers will charge you for this retrieval request on top of chargeback fees. This retrieval request is your first step in preventing a chargeback. As you can see above, failure of merchant to respond to a retrieval request will cause a chargeback to be issued. Once again, communication. You need to respond to the request immediately. Most merchant account providers will allow online access to your account or maybe even email you. Check this daily and to help you properly respond to the request.

Usually each gateway will send you an email for all transactions completed. If you receive two emails that look like the same order, review your shopping cart and then cancel the order through your virtual terminal. Doing this before batching out, can possibly even prevent the customer from knowing what happened.

If a cardholder denies making the authorization or transaction, this can potentially be fraud. There are a variety of things that you can do to prevent fraud. The first step is AVS (address verification service). This is an archaic method that Visa and MasterCard used to rely on quite heavily to prevent fraud. With so many problems though, they came out with a CVV (Card Verification Value) or CVC (Card Verification Code). Most Visa and MasterCards in the market today will have one of these numbers on the back. Electronic payment gateways will send you a transaction / order ID on your completed transaction. In this ID, you will be able to tell if the address and the CVV matched. If there was a problem., you need to scrub the transaction even further. And be very diligent in this - especially if you are allowing electronic downloads. A few other red flags could be:

1. Free email address
2. Phone number does not match the GeoIP or not entering a phone number
3. Do a GeoIP look-up (this will help to verify that the IP matches near the address of the consumer)
4. Purchasing quite a few of the same products

These are just a few reasons to scrub the transaction, I would guess that 99% of all consumers will not mind being called to verify the transaction.

If you sell a lot of high ticket items, consider faxing a credit card authorization slip over to the consumer. This can be as (link to authorization form).If you have some pretty strict return policies, consider adding some of those on this simple page. This way, If the consumer does a chargeback (and depending on the reason), you might be able to beat the chargeback. MyChoiceFax will provide a toll-free phone number with 100 free minutes for $9.95 a month if you need one.

Also, have you shopping cart verify the expiration date as well as the credit card number using the Lunh's method before submitting it to the gateway. This will help prevent a consumer using an expired card. Sometimes, the gateway or the platform will not check the expiration date.

Whenever possible, use a carrier that will provide you with proof of delivery. Having this on file will also help in some chargebacks.

And when you think the merchandise has been received by the consumer, send them a follow-up email. This will help to maintain the communication between you and your customer. This way in case something is wrong with the order, your chances will be increased that he / she will actually contact you.

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