FCA and PRA licenses (authorisations) and ongoing compliance support, training, recruitment. Contact us 7 days a week, 8am-11pm. Free consultations. Phone / Whatsapp: +4478 3368 4449  Email: hirett.co.uk@gmail.com

1 INTRODUCTION

Accepting credit cards as payment in your business transactions is a very promising concept. You can increase your revenue, your customer base and improve productivity. By simply getting yourself a merchant account to be able to accept cards for payments, you are adding convenience, cost-effectiveness and a professional image right into your business. If you have already taken this big leap, you probably have experienced how confusing credit card processing can be. There are quite a number of things that you might need to know and remember. Although the entire process can, with time, get to be fairly easy to get around in, there is one important aspect about merchant accounts that you need to know very well – chargebacks.

2 UNDERSTANDING CHARGEBACKS

A chargeback is a transaction disputed by the cardholder or card issuer. There are many reasons for chargebacks, but the most common are returned merchandise, terminated services, disputes, errors, or fraud. Merchants must be able to provide proof that the disputed transaction is valid and in accordance with Visa/MasterCard regulations or risk having their account debited for the disputed amount.

For your business, a chargeback translates into extra processing time and cost, a narrower profit margin for the sale, and possibly a loss of revenue. It is important to carefully track and manage the chargebacks that you receive, take steps to avoid future chargebacks, and know your representment rights. In addition, you should also take measures to recover losses from customers who are financially liable for transactions that were charged back to your business.]

How do I avoid chargebacks? The Chargeback Process
To avoid chargebacks, act promptly if contacted directly by the cardholder to resolve a dispute. By working directly with the cardholder, you can avoid costly fees and processing costs as well as promote goodwill with your customer. If the cardholder does not contact you, respond to inquiries from Merchant Services with as much information as possible about the sales transaction in question.

  • Avoid duplicate processing of a transaction and follow the proper procedures for settling your daily transactions.
  • Work with the cardholder to resolve disputes regarding the quality of merchandise or services rendered.
  • Refuse to process a transaction when you receive a Declined Code during Authorization.
  • Call for Voice Authorization, if needed. Call for a Code 10 Authorization if you are still suspicious of the cardholder, card, or transaction after receiving an Approval Code.
  • Include a description of the goods or services on the transaction Receipt.
  • Deliver merchandise or services before charging the Card.
  • Obtain an Authorization Code.
  • Include the CVV2/CVC2 and AVS codes for card not present transactions, if applicable.
  • Submit transaction receipts on the same day the transactions are authorized.
  • Make sure an imprint appears on a manual transaction receipt or that the relevant transaction information appears on the terminal-generated transaction receipt.
  • Not accept expired cards or cards having effective dates prior to the date of the Transaction.
Here is the entire process laid out in a step-by-step manner:

Step 1: The cardholder files a complaint by contacting his or her issuing bank about the erroneous transaction.

Step 2: The issuing bank checks whether the dispute is valid. If the bank finds the request invalid, the dispute is simply declined and the customer is charged with a processing fee.

Step 3: If the issuing bank sees a potential error, a provisional credit is provided to the cardholder. The bank then initiates the usual chargeback process, to obtain credit from the merchant’s sponsoring bank.

Step 4: The merchant bank sponsoring the account then checks whether the chargeback is valid or not. They usually send you a notification to inform you of a pending chargeback request.

Step 5: The merchant’s sponsoring bank then does some research on the validity of the chargeback claim. If the chargeback is found to be invalid, they will decline said chargeback and inform the card-issuing bank.

Step 6: Assuming the chargeback is invalid, the amount of the chargeback is removed from the merchant’s account and the merchant’s bank will notify the merchant about the outcome.

Step 7: If a processing error has indeed occurred, the corresponding correction is then sent to the card-issuing bank for re-presentation.

Step 8: The merchant will be asked to provide the needed documentation and proof to remedy the chargeback. If the documentation provided is satisfactory, the claim for chargeback is denied and the customer will be charged once again for the sale. If the documents seem to be unsatisfactory, the chargeback amount will be provided to the customer.

To prevent instances of chargeback disputes, here are some useful suggestions:

1. Make sure that you provide your customers with all possible contact information and good customer service. This way, you will encourage them to channel their complaints to you first, before calling up their issuing bank to request a chargeback.
2. Be clear with your return policy, as well as your shipping policies, and make sure that your customer clearly understands them before transacting with you.
3. Aside from verifying the billing address and security code, request the name of the card issuing bank as one of your purchasing policies. Failure to provide this will be a big red warning flag.
4. Always send confirmation emails to your customer. These should be automated ones which contain the invoice. Once shipped, send another confirmation e-mail providing shipping details and tracking information.
5. When the shipping address is different from the billing address, try to confirm the information and exercise extra caution.
6. Many consumers ask for a chargeback when they do not recognize the charge being made on their credit card statement. Thus, make sure that your company name and a clear transaction description will be reflected on their bill.

While these methods are ways for preventing fraudulent transactions and for winning chargebacks, they are not sometimes enough in the real world setting.

This is because what causes most chargebacks is not fraud, identity theft, processing errors or the like.

Additional Authentication and Verification Services can substantially decrease the number of chargeback disputes, here are some useful suggestions:

Verified by Visa / 3D Secure:

Verified by Visa (VbV/3D Secure) or 3D Secure by MasterCard enables Issuers to authenticate the identity of cardholders registered in the service when making transactions over the Internet. When a cardholder makes a purchase at a merchant participating in VbV/3D Secure, software at the merchant’s site recognises whether the card being used for payment is registered for VbV/3D Secure. If it is, a VbV/3D Secure screen appears and the cardholder is prompted to enter a password that was created at the time the card was registered. The Issuer then validates the cardholder’s identity and sends a response to the merchant indicating that he can proceed with the Authorisation.

VbV/3D Secure, therefore, allows authentication of the cardholder at the time of purchase and consequently reduces the risk of fraud and helps towards the elimination of costs related to fraudulent transactions. For merchants, VbV/3D Secure offers protection against fraudulent chargebacks even where the cardholder and/or the Issuing bank are not participating.

Card Verification Value 2:

The Card Verification Value 2 is a three-digit code printed on the signature panel on most credit cards. The CVV2 code helps validate that the cardholder is making a purchase with a genuine card that is linked to a legitimate account.

Address Verification Service:
The Address Verification Service (AVS) helps merchants to validate elements of the cardholder’s billing address with the Issuer. It is a significant service that can help you when determining whether a transaction is valid.

AVS is currently being used in a limited number of countries. In the countries where it is used, it has proven to be an effective inhibitor to fraud in the CNP environment. Used in combination, CVV2 and AVS can help you reduce chargebacks and protect your business.Consider these tips to avoid potential Fraud and Chargebacks.

3 CONSIDER THESE TIPS TO AVOID POTENTIAL FRAUD & CHARGEBACKS

Card not present transactions Look out for fraud warning signs –

(e-Commerce)

CNP transactions are considered high-risk because you have no opportunity to physically check the card or meet the cardholder. Although most CNP sales are genuine, this type of transaction is appealing to fraudsters who want to obtain goods to resell easily for cash. So take extra care and consider the risks before you process CNP payments, because you may be financially liable if a transaction is confirmed as invalid or fraudulent.

Look out for fraud warning signs (MOTO)

Here are some signs that a transaction is likely to be fraudulent. Get to know them and make sure that all members of your staff recognize them too. Sometimes the first sign of fraud can just be a general feeling that something isn’t quite right, If that happens, act on your instincts and don’t send out the goods until you’ve carried out further checks.

  • Multiple or bulk orders – Watch out for customers buying lots of the same item – either in the same transaction or separately.
  • First-time customers who place multiple orders – The risk of fraud is smaller when dealing with customers you know.
  • High-value orders – Orders larger than normal may indicate fraud. High-value items such as jewelry or electrical goods are often targeted by fraudsters because they are easy to resell, so take extra care with this type of transaction.
  • Hesitant customers – Customers who seem uncertain about personal information, such as their postcode or spelling of their street name, could well be using a false identity. Also watch out for customers being prompted when giving the requested information.
  • Same name, different title – Could your customer be using the card of a family member?
  • Sales that are too easy – Be suspicious if a customer is not interested in the price and/or detailed description of the goods, but is only interested in delivery times.
  • Suspicious card combinations such as:
  • Transactions on several cards where the billing address matches but different/various shipping addresses
  • Multiple transactions on a single card over a very short period of time
  • Multiple cards beginning with the same first six digits offered immediately after the previous cards are declined
  • Customer offering multiple different cards one after another without hesitation when previous cards are declined
  • Orders shipped to a single address but purchased with various cards
  • Requests for urgent delivery – This could be genuine, but rush orders are common in fraud scams that aim to obtain goods for quick resale before the card is reported stolen.
  • Overseas shipping address – Be careful when shipping overseas, especially if you are dealing with a new customer or a very large order.
  • Different shipping address – Orders where the shipping address is different from the billing address may be legitimate (for example, when sending flowers or a birthday present) but requests to send goods to hotels, guest houses or PO boxes are often associated with fraud.
  • Duplicate shipping address – Has the shipping address been used previously for similar orders? Be cautious if you identify the same delivery address being used.
  • Requests to send funds abroad – This is typically a request for a money transfer or other payment method to pay for couriers, interpreters or other similar services or requests. For example, a request to take a payment greater than the value of the goods/services being purchased, where the customer requests the surplus funds to be sent overseas or to another bank.
Here are some signs that an e-Commerce transaction is likely to be fraudulent. Get to know them and make sure that all members of your staff recognize them too. And remember that the first sign that something is wrong can just be a general feeling of unease. If that happens, act on your instincts and carry out further checks.

  • A risk alert from the payment service or acquiring bank. This indicates that there is a cause for concern and that further checks are required before an order is fulfilled.
  • Multiple transaction attempts using the same or similar shopper details, such as name, e-mail address or IP address across one
  • Different shopper details with one element the same – such as ten transactions from the same IP address giving different shopper names and e-mail addresses.
  • Multiple cards used by same shopper, especially where the card numbers are similar.
  • Obvious ‘card testing’, where the last four or eight digits of cards in a series of attempted payments contain similar numbers, or the card numbers are cycled repeatedly in a rough pattern or sequence.
  • Nonsensical shopper details, such as ‘namef@domain.com’ as a shopper e-mail address or ‘name’ as a shopper name or billing address
  • High-value transactions, especially where the amount is out of the ordinary for your usual daily processing amounts.
  • Mismatching Card Security Code (CSC) or mismatching Address Verification Check (AVS). Consider rejecting orders that carry mismatches or carry out further checks.
  • Mismatching combination of billing country, issuer country and IP country, especially where any one of these is from a high-risk area/country such as Nigeria, Ghana, Indonesia or Venezuela.
  • A delivery country that’s out of the ordinary for your business and regarded as high-risk
  • Use of ‘freemail’ e-mail addresses, such as Yahoo!, Hotmail, MSN, Gmail, Live or YMail. Although these e-mail services are completely legitimate, they are often associated with fraud attempts because they are easily available and relatively anonymous.
  • An e-mail address that bears no relation to the shopper name.
  • A request to hurry the order shortly after it has been placed.
  • A request to send anything of the same value.
  • Indiscriminate buying or unusually large orders that seem out of the ordinary.
  • A request to change the delivery address, especially to a high-risk area/country (see above).
  • Shoppers who give card numbers by e-mail and seem reckless with sensitive information. Sending full card numbers by unencrypted e-mail is not PCI-DSS-compliant.
  • Shoppers who give a high number of card details or lots of different billing information.
  • A request to conceal or alter payment details, or the way in which the payment is made, to make it look more legitimate.
  • General inconsistency between the shopper’s name, e-mail address, or the way they communicate and the kind of goods or services being purchased.