Is it possible to take chargeback prevention too far? It is essential for merchants to do all they can to protect their profits, but legitimate chargebacks are a form of consumer protection. Merchants shouldn’t use chargebacks as a bargaining chip or justification of harsh punishments. Find out how one merchant is taking chargeback prevention to the extremes.
A New Approach to Friendly Fraud Prevention
These days, merchants anticipate chargeback fraud and take necessary measures to protect their assets. To be effective, chargeback management should be both strategic and aggressive. However, some merchants are foregoing strategy and opting for a purely aggressive approach instead.
One example of pure aggression is displayed at Sony. To utilise the full features of game consoles like PlayStation, gamers must create an account. Before the account can be activated, the customer must agree to the company’s terms of service.
Hidden among other policies is a clause that states a gamer’s account will be terminated if the customer files a chargeback. A terminated account means the gamer would lose access to all purchased items and any money currently in the account.
This may seem like a valid prevention tactic for chargeback fraud, but what about consumers who are victimised by criminal activity? As a recent example shows, Sony’s tough stance against chargebacks turns innocent consumers into victims.
Several PlayStation Network members reported fraudulent charges as a result of hacked account information. Each victim sustained hundreds of dollars in unauthorised transactions. When account holders contacted PlayStation to discuss the security breach, they received some bad news.
The hacking victims had only two options: pay the charges that they didn’t authorise or lose their network account (and all their previously purchased game licenses). In normal circumstances, victims of criminal fraud have the right to seek a chargeback, but Sony’s punitive policies make that option less than ideal.
Many consumers are left wondering why Sony has taken such an unforgiving approach to chargeback prevention. Like many other merchants, Sony has been victimised by friendly fraudsters. Since the industry offers little recourse for friendly fraud victims, merchants often try to prevent chargebacks in any way possible.
While merchants certainly need to fight against these illegitimate chargebacks, Sony’s stance goes to the extreme. Victims of legitimate fraud shouldn’t be penalised twice.
Holding All Parties Responsible For Their Actions
The real issue with aggressive, punitive policies is that everyone loses. Consumers no longer have the protection they deserve; meanwhile, the merchant’s reputation and earning potential are severely limited by such restrictive terms. However, turning a blind eye to chargeback fraud isn’t an option either.
Moreover, Sony’s stance against chargebacks leaves out one major player in the friendly fraud equation. Merchants are unfairly persecuted by lazy consumers and biases bankers.
Banks are at Fault
The credit card networks (Visa, MasterCard) have specific chargeback regulations—procedures the banks are supposed to follow when processing a chargeback. One such requirement is that consumers attempt to settle the dispute with the merchant before processing the chargeback.
However, few banks make prior contact with the merchant a requirement for consumers. In fact, 85% of chargebacks are fraudulently placed; the cardholder bypasses the merchant and contacts the bank first.
Banks don’t want to jeopardise the relationship with their cardholders, so they often facilitate chargebacks without the essential due diligence. Cyber shoplifting in the form of chargeback fraud was born because banks operate under the assumption “the customer’s always right.”
Consumers are to Blame Too
Sometimes, friendly fraud is committed by mistake. The cardholder doesn’t understand the process and assumes a chargeback is the same as a traditional refund. Other times, the cardholder’s primary intention is to get something for free.
Creating a Balance between Merchants and Consumers
Chargeback prevention should address bank and consumer fault in equal parts. Both parties need to be held accountable for their part of the chargeback fraud experience. Unfortunately, as Sony proved, it is far too easy for merchants to lash out against consumers, both innocent and guilty alike.
Creating a balance between consumer and merchant protection is the only way to ensure everyone’s rights are upheld.
Merchants need to implement chargeback prevention. Enforcing a blanket policy that penalises all those who file chargebacks is a lazy, ineffective tactic.
Chargeback prevention should be aimed at each individual transaction. A detailed chargeback management system will help keep both criminal fraud and friendly fraud to a minimum.
If you’d like more information about preventing chargebacks, feel free to contact us. We have hundreds of methods for reducing the risk of chargebacks; we’d be happy to get you set up with an effective prevention strategy.
Hold Banks Responsible
The consumer isn’t the only party involved in the chargeback process; the bank holds part of the responsibility too.
Banks need to be reminded that chargebacks should be filed as a last resort. One way to do that is to dispute chargebacks. Studies show banks are less likely to issue chargebacks if merchants dispute the claims.
It is our goal to impress upon any bank that facilitates friendly fraud that a “no questions asked” policy is not allowed. When merchants fight chargebacks, it sends a powerful message to the banks. Recouping profits is actually just a pleasant side effect; creating industry standards that encourage long-term results is much more beneficial.
Improve Customer Service
Ideally, consumers would come to understand the consequences of the chargebacks they file. Until consumer education becomes mainstream, merchants need to work hard to exceed the customer’s expectations. Chargebacks might become a thing of the past if all cardholders were satisfied with the goods and services they receive!
The more connected consumers feels to the brand, the less likely they are to file chargebacks. There are a myriad of ways to create a more customer-friendly environment. If you think your customer service could benefit from a little TLC, let us know.
Chargeback prevention is essential, but protecting a business’s profits at the expense of consumer protection only makes the chargeback system ineffective for everyone involved. While friendly fraud is a disgraceful form of shoplifting, fear of fraud isn’t a justification for punitive policies.