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unwelcome as they may be, most online business owners will tell you that
chargebacks are simply a part of e-commerce reality. For whatever reason,
sound or rash, customers can back-out on a purchase - and then the card
issuers back-out of the transaction with a merchant chargeback. Compounding
the problem, chargebacks resulting from fraudulent transactions further
burden merchants already saddled with more stringent 'card-not-present'
merchant account policies.
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There's a lot a stake in the chargeback dilemma and, depending on what
kind of online enterprise you operate, chargebacks can make serious waves
for your business. Due to shipping and the logistics of card-not present
transactions, online chargebacks are messier than their offline
counterparts.
More problematic are those chargebacks stemming from fraudulent
transactions and chargebacks coming from customers who claim they never
received their merchandise (when they have) or placed orders in the first
place (which they did). With the absence of a signature on card-not-present
transactions - and credit card policies that generally side with the
consumer - the merchant is required to cover the costs of the merchandise
and pay a chargeback fee (a penalty for simply incurring a chargeback,
legitimate claim or not).
Additionally, a merchant account provider may establish a variable
chargeback rate for merchants. A chargeback rate equates to a percentage of
your total monthly sales (held in a reserve) and the specific percentage is
usually determined by what kind of product or service you sell, as well as
your chargeback history.
So what's an online business owner to do when faced with this kind of
chargeback intimidation?
First, there are a number of proactive strategies to diminish the
frequency of chargebacks and minimize their overall impact on your business.
The action begins even before you go online - when you choose a merchant
account provider for your card-not-present account. Then, once your business
is up and running, proactive risk management measures can decrease
fraudulent orders. Consider the following:
Choosing a
reputable merchant account provider is your first objective.
Many merchant account providers are known for providing poor customer
service and then twisting the knife with limits, unwarranted penalties, and
exorbitant fees. When choosing a provider, analyze how the chargeback
policies work. Not every merchant account provider will hold a chargeback
reserve - and different providers maintain moderate to insane chargeback
fees.
Your Merchant Account Manifesto: Look beyond mere discount rates and read
the small print! Pay a tenth of a percentage more for customer service,
sound policy, and integrity.
Next, select a
payment processing solution that provides extensive, state-of-the-art
anti-fraud measures. SSL
encryption protects consumer data (which gives your customers the security
they demand), but you must also make sure that your credit card
authorization involves effective verification procedures to protect your
business from fraudulent orders. All authorizations should be run through
anti-fraud systems like AVS (address verification) or optional CCV2
authorization.
Look for
irregularities in orders inconsistent with typical, legitimate customer
behavior and ordering logic.
If an order looks suspicious, investigate for fraudulent activity.
Put the red
flag on all 'hot-mail' varieties of delivery addresses.
Scrutinize these and take extra precautions, even to the point of
authenticating addresses and getting signed authorizations if need be. When
in doubt about any transaction, verify addresses, phone numbers, and the ISP
requirements for an email address.
For many
companies, a disproportionate number of chargebacks can be traced to orders
coming from abroad.
Monitor your international orders, look for fraudulent trends and run
suspect orders through special screening procedures. (Also, credit card
companies may increase your chargeback rate if your international orders
exceed a certain percentage of your total orders.)
Remember: merchant account providers and payment processing solutions are
not all alike. Choose a reliable provider that can offer you reasonable
rates, supportive policies, and provide superior, responsive customer
service. Select a payment processing service with powerful security and real
time anti-fraud systems. You will sleep better.
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