Chargeback Fraud: Consumers Claim Items Weren’t Delivered

There are various ways for consumers to engage in friendly fraud (or chargeback fraud). One of the most common methods is falsely claiming an item or service wasn’t delivered.

Let’s look at the best ways to manage these chargebacks.

Chargeback Reason Codes

Each chargeback is accompanied by a reason code. This code is meant to explain the transaction dispute.

Visa and MasterCard each have their own set of reason codes.

  • Visa Reason Code 30: Services Not Provided or Merchandise Not Received
  • MasterCard Reason Code 4855: Non-Receipt of Merchandise

What Causes These Chargebacks?

The card networks allow consumers to file these chargebacks based on a number of purchase outcomes.

  • The merchant failed to provide the services agreed upon.
  • The merchant failed to send the purchased merchandise.
  • The merchant charged the credit card before shipping the item.
  • The merchant didn’t send the products by the agreed upon delivery date.
  • The merchant didn’t make purchased items available for pickup.

There are other reasons why consumers choose to file these chargebacks, but they aren’t valid reasons recognised by the banks. Friendly fraud is usually the motive.

Friendly fraud usually results from one of the following situations:

  1. The customer regrets making the purchase and thinks filing a chargeback is less bothersome than obtaining a traditional refund.
  2. The time limit for requesting a return has expired or the consumer’s actions make a return impossible (for example, wearing a pair of shoes and then decided they don’t fit properly).
  3. A family member made the purchase, but the primary cardholder doesn’t want to authorise the transaction.
  4. The original intention was to get something for free.

The Chargeback Filing Time Limit

The cardholder has the right to wait 120 days (or approximately four months) to file a chargeback. The clock starts ticking on one of the following dates:

  • The day the transaction was posted
  • The specified delivery date
  • 30 days after the posting date if the merchant didn’t provide a specific time for delivery
  • When the cardholder finally does received the item (if it was after the agreed upon date)

How Friendly Fraud Slips Through the Cracks

In situations like this, the cardholder is supposed to communicate with the merchant before taking action with the bank.

For example, the rights and limitations outlined by the credit card networks state:

  • The cardholder must attempt to resolve the issue with the merchant before filing a chargeback.
  • If the item was delivered after the agreed-upon date, the cardholder must attempt to return it to the merchant before filing a chargeback.
  • If a late delivery item was delivered and returned, the cardholder must wait 10 calendar days for the merchant to post a credit before filing a chargeback.

Technically, these stipulations should open the lines of communication and help merchants prevent chargebacks. However, there is one fatal flaw.

The banks are so overwhelmed by the number of transactions being made and the elevated level of chargebacks, they simply don’t have the time to review each individual case. Most of the time, the bank is forced to trust the cardholder’s claim that an honest attempt was made to rectify the situation.

In reality, 86% of cardholders file a chargeback without contacting the merchant first.

Tips for Disputing Chargebacks

Your actions in response to a Visa reason code 30 or MasterCard reason code 4855 will depend on the events preceding the chargeback.

  • If you sent the merchandise and it arrived on or before the agreed upon delivery date, send supporting evidence to the acquirer.
  • If the customer purchased a digital good or service, send proof of download to the acquirer.
  • If you didn’t specify a delivery date and the transaction as posted less than 15 days ago, send a copy of the receipt to the acquirer with a note that the allotted time period hasn’t expired.
  • If the agreed-upon delivery date hasn’t passed, send a copy of the receipt to the acquirer with a note of the anticipated delivery date.
  • If the services were provided, send the acquirer evidence that the customer acknowledged receipt.

Tips for Preventing Chargebacks

As you can see, disputing a chargeback is very challenging. It requires detailed organisation of important documents that must be retrieved quickly.

To successfully respond to chargebacks, merchants must have written documentation supporting their claim. This is usually difficult to come by.

One of the best chargeback prevention tactics is also a great representment tool. Requesting delivery confirmation helps deter friendly fraudsters. The customer can’t say the item never arrived if you have signed documentation saying it did!

Another way to prevent chargebacks is to educate customers about the anticipated delivery date. Outline the order fulfilment process and state the date the item will ship. Then, mention how long the shipping process takes and the estimated delivery date.

Make sure customers can easily find your contact information. Maybe customers want to contact you for a refund, but can’t find the information they need. Share your email address, website URL, physical address, phone number, social media accounts, and anything else you think might be helpful. Share your information on your website, in emails, on the delivery receipt, marketing materials, and any other source of communication.

Address customer complaints quickly and effectively. Answer the phone when it rings. Customers are probably reaching out to you because they are upset about something. If you make them wait on hold or ignore them altogether, the bad situation will only intensify. Likewise, reply to email quickly. Customers expect both a speedy acknowledgement and solution.

Promptly communicate issues with the customer. If an order is delayed, let the customer know. Offer refund if the new delivery date isn’t acceptable. If the customer asks you to provide a refund, do so immediately. Let the shopper know when the credit has been issued and when it should appear on the credit card statement.

Don’t Give Up!

Fighting friendly fraud is challenging, but not impossible. The first step towards effective management is education. Take the time to learn more about the problem, work to raise awareness among your customers, and start recouping lost profits.