The holiday shopping season is upon us, and while it is usually a joyful, if not busy, time of the year for retailers, it can also have merchants seeing red over an increased number of chargebacks, which tend to spike at this time of year due mostly to an overall increase in transactions, particularly online. Credit card industry publication The Nilson Report stated that in 2014, fraud reached $16.3 billion on total sales of $28.8 trillion, but these statistics only show the losses on unauthorized transactions, not the fees, interest and other penalties associated with chargebacks. In addition, there is an expected jump in card-not-present (CNP) fraud, due to the introduction of EMV embedded-chip cards prior to the 2015 holiday shopping season.
Chargebacks will happen. That, unfortunately, is an indisputable fact. So how can you protect yourself and help to reduce your overall chargeback numbers? Below are some tips that can help limit your chargeback liability during this holiday shopping season, and beyond:
Address friendly – and not-so-friendly – fraud. Friendly fraud happens when the customer, who is usually a legitimate card holder, has received her merchandise, yet for whatever reason files a chargeback with her credit card company. Not-so-friendly (NSF) fraud, on the other hand, is generally perpetrated by those who are not the legitimate card holder, and since the advent of EMV, happens mostly online. You can reduce incidents of fraud by ensuring you have as much information on the customer and her purchase, including proof of purchase and delivery, both of which make it harder for the customer to dispute the receipt of her purchase.
Be wary of expedited or overnight shipping with different billing and shipping addresses. If the card number is stolen, the thief would not want the merchandise he is purchasing to be sent to the cardholder. You may want to consider using an address verification system, which checks the address entered into the billing/shipping boxes on a web form against the most recently registered address for the card issuing bank’s records. This works best if you request the billing and shipping addresses to be filled out separately.
Make sure the IP location and credit card address match. There are several situations where a cardholder’s IP location will not match her billing address, credit card country, etc. She may be on vacation, even out of the country, when making her purchase. This doesn’t always indicate fraud, but if the IP location doesn’t match the card address on file with the bank – especially if there’s another red flag from this list – it may be worthwhile to contact the customer directly to find out if she did indeed make the purchase, and then proceed accordingly.
Always require the credit card’s security code. If the card number, and not the physical card itself, is stolen, the thief may not have the three- or four-digit CVV2 (Visa) CVC2 (Mastercard) or CID (American Express) number from the back of the card (AmEx CIDs are on the front). Requiring this is an added step toward authentication, as this data is not embossed on the card nor stored on the magnetic stripe, so it cannot be stolen through many usual methods used by thieves to steal other card details. While having matching security codes does not eliminate fraud, it usually indicates the cardholder is the one making the purchase.
Use tracking numbers and require signatures for all shipments. A tracking number will be sent to the cardholder’s email address on file, so if she didn’t order anything, she can dispute the purchase almost immediately. It also offers the customer peace of mind, knowing that her package will be arriving within a specific window of time, which is particularly useful during the holidays, when most purchases are gifts. Often, they provide a notification when the package has been delivered, so if a customer receives a delivery notice but the package is not on her doorstep, she can file charges with the proper authorities. Requiring a signature can also be an added security feature, as the cardholder’s signature will generally not match that of the thief.
Check your own purchase and delivery system. Buy from your own website frequently to ensure your ordering process is efficient and your orders are being delivered on time. Testing your site in this way can help you to see exactly what your customers go through during the fulfillment process and identify any issues quickly, so they can be rectified immediately.
It is not possible to completely eliminate fraud and chargebacks, but by adding a little extra diligence to your holiday shopping policies, you can greatly reduce its impact on your business. It is probably a good idea to continue with these steps long after the holidays are over, to help keep your incidents of fraud down year-round.