Common Chargeback Scams & Tips to Prevent Them

Dec 30, 2015

Customers may file a chargeback depending on different reasons. When a customer files a chargeback with his bank, he is supposed to provide documentation as the reason for the transaction dispute. Let’s take a look first at the different scenarios in which customer may file a chargeback –

Friendly Fraud – Common Reasons Explained...

A number of valid reasons do exist for chargeback; however, there are a majority of cases in which transaction disputes are owing to friendly fraud. Friendly fraud is the scenario when an apparently satisfied customer completes a transaction and authorizes the sale but later gets in touch with his bank in order to initiate a chargeback.

Let’s take a look at the various scenarios under which chargebacks are claimed normally -

  • The customer informs that the merchandise was not delivered when actually it was.
  • The customer claims the delivered merchandise to be defective when it was fine actually at the time of delivery.
  • The customer claims that he never authorized the transaction when it was actually authorized.

Quite possibly, the claim may appear to be legitimate, the customer may actually have a totally different motive for requesting for chargeback. Typically, it’s the customer’s intention to acquire merchandise for free that drives the motive of such chargeback scams.

Why Chargebacks Continue Being a Complex Issue for Merchants?

There are several reasons that account for free flow of such chargeback scams without much of resistance. Let’s take a look at a few common ones of them –

  • The chargeback system was developed way before e-commerce started flourishing and so handling the modern fraud threats is somewhat not within its capability.
  • As the chargeback system is based on human interpretation, it allows for simplified manipulation & subjective reasoning.
  • The chargeback process is dependent on human interpretation, allowing for easy manipulation and subjective reasoning.
  • Being busy with the routine business, the merchants hardly have sufficient time to devise strategies for managing chargebacks.
  • Merchants find themselves incapable of interpreting the complex nomenclature related to bank network regulations.

So, How to Handle such Chargeback Scams?

  • Identify ways of providing improved customer service
  • Identify & implement tools & technologies that can assist in advanced fraud detection.
  • Evaluate & identify business practices that may lead to friendly fraud.

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