Every Merchant Needs These Chargeback Prevention Tools in their Arsenal
No merchant likes chargebacks.
Each chargeback has a profound effect on the merchant’s profit margin, robbing them of their revenue, reputation and long-term sustainability. Luckily, there are some tools which may help merchants avoid those negative consequences.
#1. Blacklists
Creating a blacklist allows a merchant to ban users they suspect of committing fraud. This can be applied to single IP addresses on an individual basis, or the merchant might use the blacklist to refuse all users from certain countries or regions where fraud is a common problem.
Unfortunately, there is not much the merchant can do once they’ve already been hit by a fraud attack. Keeping a blacklist can at least ensure that they don’t fall for the same tricks more than once from the same user.
#2. Whitelist
A whitelist is like a blacklist, but in reverse. While a blacklist blocks users specified by the merchant, a whitelist block all users except those specified.
For example, if a merchant is only willing to accept domestic orders, they can use a whitelist to prevent all users from placing an order unless their IP address is in that country. This gives merchants the power to be very selective about their clientele depending on how tightly they want to limit the parameters of these two chargeback prevention tools.
#3. Velocity Limits
When criminals steal cardholder information, their goal is to maximize their haul before the cardholder or their bank discovers the breach. This leads the fraudster to try to “run” cards—if one transaction is successful, they will usually try to complete multiple additional transactions in quick order.
Velocity limits combat this by restricting the number of transactions a user can complete using the same information within a set period. These velocity limits can be imposed on the card or on users based on IP address, allowing the merchant to identify and ban suspicious users before they complete their series of attacks.
#4. Card Security Codes
The card security code—the three-digit code on the back of each payment card (or four digits on the card front, for American Express)—is another invaluable tool at merchants’ disposal.
Although verifying the card security code is not a foolproof solution, if the user can enter the code then it suggests that the user is probably in physical possession of the card. This would block any fraudsters who manage to obtain a cardholder’s account information without the card security code.
#5. Biometric Technology
Many are skeptical of mobile wallets, assuming a phone cannot offer improved security compared to other payment methods. However, this overlooks the multi-step authentication process employed by mobile technology, as well as the fact that mobile wallets like Apple Pay use the same tokenization technology as EMV chip cards.
To make a payment, the cardholder must first unlock their phone, then use additional biometric security features such as a fingerprint or facial scan to authorize the transaction. Thus, merchants are more secure accepting mobile payments than with a traditional card-not-present transaction.
#6. Address Verification Service (AVS)
Fraudsters will not always have access to the cardholder’s full information, and as such, will fill-in a false billing address to fool the merchant into accepting the payment.
As its name implies, AVS compares the billing address provided by the customer during a transaction against the billing address on-file with the cardholder’s issuing bank. If the two do not match, it is likely that the person using the cardholder information is doing so fraudulently.
#7. 3-D Secure
3-D Secure is the general name for a technology offered by several major card schemes aimed at preventing fraudulent activity.
Cardholders first need to opt-in to the program and create a security code which acts essentially as an online PIN. 3-D Secure then adds an additional step to the checkout process each time that cardholder completes a transaction with a participating merchant which asks for this security code to authorize the sale.
#8. Visa Account Updater (VAU)
VAU works as a clearinghouse for cardholder information, automatically notifying recurring billing merchants anytime a cardholder’s information is updated. This enables merchants to continue charging the card regularly without the need to track down the cardholder and update the information manually.
VAU helps merchants maintain lucrative recurring payments, and is also one of the more effective chargeback prevention tools in that it prevents transactions processed with incorrect card data.
#9. Bitcoin
More and more merchants are accepting Bitcoin every day. While their customers’ convenience is a popular motivation to accept this and other cryptocurrencies, it’s also worth noting that Bitcoin is essentially chargeback-proof.
Due to the nature of blockchain-based payments, a transaction involving Bitcoins is not subject to laws ensuring chargebacks and cannot be overturned once completed. Add to that the increased security associated with blockchain and its little surprise that Bitcoin continues to grow in popularity with online merchants.
#10. Chargeback Alerts
Merchants who use chargeback alerts are notified any time a customer disputes a transaction with their bank. The alert essentially intercepts these disputes before they progress to a full-on chargeback, allowing the merchant to refund the sale rather than suffer the chargeback fee and additional consequences.
There is No Definitive Solution
All these tools play a major role in helping merchants defend themselves against chargebacks; however, they are still not fool-proof. All these solutions rely heavily on automation to carry out their function, and automated technologies possess certain inherent vulnerabilities.
Automation is reactive, meaning that it can only base conclusions on preexisting data. Much of that data will be insufficient or outdated, potentially leading merchants to identify and attempt to fix the wrong problem.
Chargebacks are ultimately a human problem, demanding a human-based solution. Contact us today for more information about proactive, multilayered approaches to chargeback prevention.