Chargebacks were one of the most important issues faced by online merchants in 2020, and no signs are pointing at significant improvements in 2021. Fortunately, there are some things you can do to prevent your online business from becoming easy prey for dishonest customers. From participating in a merchant chargeback protection program to following some simple rules and guidelines when processing orders, you can take action and minimize the losses from chargebacks.
- Can I Avoid Chargebacks Altogether?
The answer to this question is “no.” Chargebacks are a safety mechanism that was meant to protect the customer from being stuck with a faulty, damaged, or otherwise subpar product once they’ve acknowledged its receipt. The customer is only (legally) able to file a chargeback if the problem with the order is a direct result of the merchant’s actions, such as poor quality control, unsafe packaging, or shipping out the wrong product. In these cases, the merchant is obligated to provide a full refund if the customer chooses to file a chargeback.
This reasonable safety measure eventually became an easy target for dishonest customers who purchase items online and then request chargebacks to avoid paying for their order. It is a very widespread practice because there is very little that can be done about it. Large sellers might not be affected by this, but small businesses can really suffer if chargebacks are abused.
Taking legal action against such chargebacks, even if they are almost obviously fraudulent, is expensive and often not worth the effort, so most businesses end up offering the refund anyway. Known as “friendly fraud,” this online scam is particularly dangerous for international sellers who are exposed to a significantly higher risk of facing fraudulent chargebacks, since they also have to cover the shipping fee, which can be quite hefty.
- How Can I Detect Orders That Will Likely End in a Chargeback?
While we do find that the best way to protect your business from fraudulent chargebacks is to use a merchant chargeback protection service such as Ethoca, there are also some simple things you can watch out for when processing orders:
- Noticeable mismatches in the customer’s personal information
- Bulk orders from a physical person as opposed to a business (especially if the order includes products that are not normally bought in bulk)
- The origin of the customer’s IP address is different from the shipping address
- Multiple failed transactions when placing a single order (these could indicate the use of a stolen credit card)
Keeping an eye out for these warning signs can help you avoid some fraudulent chargebacks, but it is still a good idea to rely on a merchant chargeback protection program for maximum protection.
Let’s Fight Fraudulent Chargebacks Together
Have you already had to deal with fraudulent chargebacks? How did you resolve the issue, and what did you learn from the experience?
If you’d like to share your story, ask our readers for tips, or express your views on handling malicious chargebacks, feel free to do that in the comments section below.