One common way through which merchants lose lots of money is via friendly fraud. Friendly fraud, which may also be referred to as chargeback fraud has become a common occurrence and this has greatly affected many businesses. For those who don’t know what friendly fraud is, it happens when a customer buys an item using their credit card and then contacts the card issuer to dispute the transaction.
The main aim of disputing the transaction is to get a refund for the items that he/she bought. Why is it referred to as friendly fraud? The reason for this name is because the customer often comes up with claims seem honest and believable.
These customers claim that the product was not delivered, they did not authorize that transaction, the item was defective or they returned the product but were not offered a refund. Even though there are people who use chargebacks for legitimate reasons, there are others who use them to scam businesses.
When a chargeback occurs, the merchant may end up losing his/her merchandise and incurring high costs. Therefore, it’s important to know ways how to prevent chargebacks.
How to Avoid Friendly Frauds
Verify Addresses
Use the Address Verification Service (AVS) to verify the address of the consumer. AVS is a useful anti-fraud tool which you can use to reduce the chances of a chargeback. With this system, you can decide what to do with orders whereby the shipping address doesn’t match the billing address.
You may choose to reject the order, put it on hold or have your employee(s) confirm the address with the customer. Don’t turn off this option regardless of what you do. It can go a long way in preventing fraudulent orders.
Ask For CVV2
As with Address Verification Service, ensure that you’ve turned on the CVV2 option as well. In this option, the customer is required to enter a “card verification value” which is located at the back of the card – mostly3 or 4 numbers. The customer should have the card in hand and can’t proceed with the order unless they have it.
Keep Proper Records
Ensure that you keep printed copies of all orders and transactions. Also, ensure that you retain the communication used by customers when buying products from you.
This information will come in handy when responding to a chargeback. Also, ensure that your customers have a way of contacting you should they experience any issue with the order. This way, they won’t go to the card issuer first. They’ll contact you first.
Process Only the Approved Sales
If a certain transaction has been declined, don’t process it for whatever reason. Many merchants feel that the declined transaction was an error and go ahead to process the transaction anyway. To avoid any issues in the future, don’t do it.
Train Your Employees
If you depend a lot on employees when making sales, then it’s essential that they know how to deal with online and physical transactions.
Train them on how to detect friendly fraud and prevent chargebacks. Educate them on how to spot suspicious transactions, verifying signatures in physical transactions and verifying the address before completing the order.
Adhere to Merchant Account Policies
Each credit card issuer has well-defined protocols when it comes to credit card processing. No matter your chosen credit card processor, be aware of their chargeback policies and follow their recommendations on preventing friendly fraud and how to stop chargebacks.
Credit cards are a necessary evil of conducting business because it’s the quickest and easiest way for customers to pay you. But the process is faced with the risk of friendly fraud. By following the above tips, you’ll limit your exposure to this troubling and costly aspect.