How to Fight Back Against Fraud-Related Chargebacks

Ideally, your business would run smoothly as you process payments for your customers each day. Your customers would gain value by buying the items they need (or want) while your company's revenues continue to grow. Unfortunately, there are a number of potential problems which may not only try your patience, but can even threaten the status of your merchant account.

Chargebacks are a major concern for small business owners, especially while processing payments online. They're expensive, inconvenient, and can occur for several reasons. What's more, if a business owner receives too many of them, his merchant account provider may terminate his account, placing him on the Terminated Merchant File (also referred to as MATCH).

In most cases, chargebacks are requested because cardholders identify transactions which are unauthorized. In that context, for merchants, avoiding a chargeback is a matter of thwarting fraudulent activity. Below, we'll provide a few tips that you can use to limit your vulnerability to chargebacks when accepting credit cards online.

Use The Security Codes

Every major credit card issuer places a security code on their customers' cards. They're called CVC2 and CVV2 codes. Visa, MasterCard, Diner's Club, and Discover use 3-digit codes while American Express uses a 4-digit code. They were developed as a security protocol to be used specifically for "card not present" transactions (for example, when processing payments online or over the phone).

Neither CVC2 and CVV2 are included on the magnetic strip. That prevents criminals from acquiring the codes by swiping the strip through a terminal. As a result, when merchants ask for the CVC2 and CVV2 before processing online payments, they often thwart would-be offenders.

Take Advantage Of AVS

The Address Verification System (AVS) is a security measure that compares the mailing address of a cardholder's account with the address that a customer provides online. In many cases, an offender will try to use his own mailing address while providing a stolen credit card number. When the two addresses fail to match, the AVS notes the discrepancy (called an AVS Mismatch) and causes the transaction to be declined.

There are a couple of limitations with AVS. First, it is primarily used within the U.S. as well as throughout the U.K. and Canada. Most online credit card fraud originates outside those countries. Second, AVS only checks the numeric portions of a cardholder's mailing address. While this is not a significant limitation of the system, it is worth noting. Even so, all merchants should use AVS when processing online payments.

Inform Customers About Their Statements

If you're using a third-party payment processor, your customers' statements will probably list that processor's name on the transactions. Don't expect your clients to remember their purchase simply by noting the transaction date and dollar amount. Several weeks may have passed between their purchase and their review of the statement. Memories fade and chargebacks often follow.

Let your customers know at the time of their purchase what they can expect to see on their statement. You can eliminate their confusion and reduce the chances of their requesting a chargeback.

Protecting Yourself And Your Customers

As online sales continue to increase, there will likely be a similar increase in fraudulent activity. The success of your online business depends upon being able to process payments without falling victim to fraud-related chargebacks. Take advantage of existing security protocols offered by AVS as well as CVC2 and CVV2. Plus, keep your customers informed about what they should expect to see on their statements. By limiting your exposure to chargebacks, you can continue growing your business's revenue while confidently maintaining your merchant account.