Online retailers at risk for chargebacks, fraud

Every retailer who accepts bankcards understands the need to avoid chargebacks, and MRA members have read tips for avoiding them in Michigan Retailer, on statement messages and from customer service.

Chargebacks can result from a retailer error (such as double charges), forgetful or confused customers or, most troubling of all, credit card scammers who are using stolen credit card data for fraudulent purchases. In these cases, the customer requesting a chargeback and the retailer are both victims.

Online retailers and other remote sellers face unique challenges in the struggle to avoid chargebacks. Online merchants are responsible for the full amount of the chargeback if they lose due to fraud, poor record keeping, late response or failure to meet policies.

Because they do not deal with cardholder customers face to face, many online retailers now verify credit card numbers using secure checkout services, such as address verification and card verification codes—numbers that appear printed on the back of the card.

The following tips have been useful to online retailers in avoiding chargebacks:

• Don’t accept an order unless the customer provides complete information (including full address and phone number).

• Use Address Verification (AVS). Address verification confirms numerical address information with card-issuing banks, and it returns codes that tell merchants whether the figures match. AVS is not available for international addresses.

Ask your website designer or shopping cart service to incorporate this feature into your checkout process. Alternatively, most bankcard processors, including MRA, provide AVS through a voice authorization service.

Whenever AVS is available, do not accept an invalid or incomplete response. Most mail order and Internet chargebacks are cards that did not get a positive AVS response.

• Consider adding a feature, offered by some website designers or shopping cart services, that checks the card verification code—the number printed on the back of credit cards. (MasterCard calls it CVC2, Visa calls it CVV2, but all major cards use them). The information does not appear in the magnetic-stripe information and is not kept with transaction records, so it should not be part of any stolen data.

• Use shipping that can be tracked so you have proof of delivery, helpful in cases where the customer disputes receiving the item. If you have a delivery signature, you will improve your case further.

• To avoid “declined authorization” chargebacks, do not continue to obtain authorization on a declined card by reducing the amount requested, or by repeating the request.

• Be sure your customers can remember the transaction and can contact you if necessary. Include your complete name and phone number on every invoice and monthly statement.

When a customer buys from “Nancy’s Sewing Supplies” and the charge on the statement says, “NSS, Inc.” she may have no idea what NSS Inc. stands for, and may charge back the purchase before realizing NSS Inc. stands for Nancy’s Sewing Supplies.

If your phone number does not appear on their personal credit card statement, customers may charge back the sale, just because they can’t get you on the line. If your complete name and phone number are not on their statement, call your processor and ask them to add it today.

• Keep good records of all sales. This obvious point is often overlooked. Customers may dispute charges up to 180 days or more after the sale if they used a MasterCard or Visa.

Often only the card number is provided in a MasterCard or Visa chargeback, and the merchant must determine the customer’s identity. Sales drafts and invoices are your best defense, and the more clearly they are worded, the less likely you are to have a chargeback in the first place.

• Make your refund and return policy perfectly clear to your customers. Display the policy at the point of sale—for online merchants, this usually means the shopping cart. Also, print the return policy on the invoice. Consider setting a policy of not accepting international orders that have different “bill to” and “ship to” addresses, or other safeguards that will help you without driving away customers.

• Be wary of:
– Orders with different “bill to” and “ship to” addresses.
– Orders that are larger than your typical order amount or unusual in other ways.
– International orders. Since AVS is not available, do everything you can to validate the order before you ship your product to a different country.
– Orders that come from customers using free e-mail services (for example, hotmail.com, juno.com, usa.net, yahoo.com)—there is a much higher incidence of fraud associated with these e-mail addresses. Scammers prefer these addresses because they are anonymous and easily available. Of course, many honest customers use them as well.

To confirm a suspicious order, call or e-mail the customer, requesting the name and phone number of the bank that issued the credit card, the exact name on the card and the exact billing address. Scammers won’t give valid phone numbers or reply to such e-mails. If the customer does provide the information, check it out.

MasterCard and Visa chargebacks will be deducted right from your bank account. You will be charged a fee for the funds transfer, even if you win.

American Express and Discover customers will receive a request for a response before the funds are removed, and they do not charge a fee for any chargebacks, even if you lose.

Avoiding chargebacks is essential to the survival of your business. In addition to the obvious expense, if your chargeback percentage exceeds 1 percent of your total credit card sales, you could be in danger of losing your merchant account.