Chargebacks were created as a form of protection for the consumer. The Federal Reserve created regulations guaranteeing card holders the right to a reversal. Various bank networks have their own corresponding rules. Initially, it would seem that a merchant would be more likely to provide quality products and speedy shipping if they had a threat of a chargeback or even having their merchant account turned off, however these rules are extremely one sided.

Consumers typically dispute transactions for a variety of reasons, and each one is issued a “reason code.” The most common reason code used is fraud and identity theft. Merchants are often left with little or no recourse. Visa and MasterCard may even issue their own fines for high chargeback ratios. But what happens when you have a consumer that is abusing the chargeback system? Some consumers make it a habit of reversing transactions.

Some online merchants have opted for chargeback insurance. Chargeback insurance is coverage protecting a merchant who accepts credit cards. With chargeback insurance merchants are covered in the event a consumer claims fraud, lost or stolen credit cards, and post purchase shipping information changes. Chargeback insurance can be costly and in some cases unnecessary. Chargeback disputing and prevention are key in ensuring your online business is making money for legitimate product sales.

Keeping your business safe against online consumer predators is easier and more cost effective than most may think. There are legal ways for a merchant to dispute and win a chargeback.  Ensure that your site has clear and well written terms and conditions and that your system is verifying AVS. Systems like Verified by Visa and MasterCard Secure can give your site extra security during the purchase process. In some cases, when a customer agrees to the terms and conditions on your site, it is as good as an actual signature at a store front. There are also systems that will respond to chargebacks on your behalf. This route will save you time, headache, and money.

Illegitimate chargebacks are costing business owners, and it’s time to fight back against dishonest customers and fraud. I have surveyed 50 of my online merchants and found that most of their chargebacks come from people who order items online, and then in an attempt to keep the product without paying for it, dispute it. I consider this shoplifting.

Part of the problem seems to stem largely from regulations put in place stating anyone can dispute any charge for any reason. Naturally, crooks will use these regulations to their full advantage.

Many online merchants are losing the battle against chargebacks and feel there is nothing they can do. Online merchants should not give up; not all chargebacks are final. The best option is to respond to the chargeback letter immediately. Keep in mind that if your bank still honors the chargeback, you have the right to go after the consumer plus any costs you incur as a result.

Some key tips for combating against chargebacks are:

1. Use a trackable shipping service and require signature on delivery. This provides you with documentation if a dispute should arise. If you sell e-books or other downloadable items, it is a good idea to add something tangible for tracking purposes.
2. Make sure your return policy is clearly posted on your website. Post time limits for refunds and associated fees, such as restocking fees. Also note the condition of the product.
3. Post a chargeback policy on your website. Don’t be afraid to report customers to collection agencies for excessive chargebacks.
4. Make sure to pick a gateway that has a chargeback support feature. These gateways can help you find the best way to combat chargebacks and the correct way to respond to chargeback notices.

It is better to be safe than sorry. If you have specific chargeback issues and are looking for the best way to respond to your notices, feel free to comment. We would love to help.

Many merchant services providers have begun offering card processing for high risk business types. Some of such business types require additional information to get approved and can also be associated with higher rates. If you are looking to get card processing for a high risk business you are in luck and now have many choices. Some of the criteria to get a high risk account approved are as follows:

• Your credit report will place a large role in the approval process. Companies will look at past loans and how quickly they were repaid.  They will also look for liens, judgments, and bankruptcies.
• Being able to show strong previous financials and assets will go a long way in the approval process. It is common to have to provide 2 years personal tax returns and 6 months of bank statements.
• It is often good to have a tangible product that is sent to your customers. For example, if you sell mortgage restructuring services, you should have a welcome package that goes out to new customers. Having a tangible product reduces the risk of chargebacks.

However, even with strong financials be prepared to pay higher rates or be required to have a reserve account.

Even the high risk business types are seeing a decline in business. A recent Allstate poll found that half of all Americans plan to cut back on travel in 2009. Travel and tours have previously been considered a high risk business type. The travel industry is getting ready to take a big hit in the coming year. In addition, mortgage restructuring companies are seeing a drop in business despite the amount of people facing losing their homes. Many cannot afford the fees associated with getting themselves out of debt.

One safe option for these high risk business types is to accept Automated Clearing House (ACH) transactions. This allows for an actual bank account to be charged as opposed to taking a credit card from someone who is already in debt.

There are still many options that will enable businesses to accept Visa and MasterCard payments. As long as credit is being issued Americans will continue to use it.

The best way to deal with any chargeback is to prevent them from happening in the first place.

Tips for preventing chargeback claims:

• Use a clear DBA (Doing Business As) name that customers will recognize on their billing statements. An unrecognized DBA on a billing statement is one of the most common causes of chargebacks.

• Put your phone number on your customers’ statements. If they don’t recognize your business name or have a question about the charge, they are more likely to call you to resolve the matter than calling their bank to file a dispute.

• Respond to chargebacks as quickly as possible. A limited amount of time is available to resolve a chargeback. If you miss the window of opportunity to respond, you forfeit your rights through the chargeback process.

• Never accept an expired credit card.

• Obtain authorization for the full amount of the sale. You should never accept declined transactions or split them into smaller amounts.

• Be suspicious of high-ticket sales requested to be sent next-day air or if a runner will be in to pick up the purchase at a later time.

• Use the fraud services offered by the processing bank including AVS (Address Verification) and CVV2.

• Work closely with customers to resolve matters regarding merchandise quality and service issues.

• Balance each batch to the host or to your order tickets to help prevent duplicate charges.

• Call the customer about suspicious orders to ensure the order is legitimate. If you can’t reach the customer, you may have intentionally been given incorrect contact information.

• Verify the customer’s name, address and phone number with the card-issuing bank. By calling the Voice Authorization Center for address verification, you can verify the address and also provide proof that you verified the address.

• Look closely at orders with different shipping and billing addresses. Oftentimes customers have orders shipped to their work or to gift recipients, however it’s not a bad idea to contact the customer to make sure the order is not fraudulent. Be especially wary of orders with domestic billing addresses and foreign shipping addresses; they are usually fraudulent.

• Always get signed proof of delivery. Provide a shipment tracker log that shows that the customer received the order.

• Charge the customers’ account when their order is shipped. If you know there will be a delay in delivery, wait to process the credit card, or only charge the card as you fulfill the order.

• Clearly state your return/refund policy on your website. Make it a requirement that customers read the policy before their order is processed.

• Provide accurate descriptions and images of your products and services.

• Be cautious of foreign orders.

Customer Service is Paramount

Unfortunately, online merchants are at a disadvantage when it comes to chargebacks. Without a credit card to swipe or a signed receipt, verification of a sale is always risky business.

But that doesn’t mean you have to leave it to chance. New tools and software programs help to reduce fraud and consumer disputes.

Verified by Visa and SecureCode are great tools that will help you to verify a customer’s identity at the time the transaction takes place. In addition to taking advantage of current technology, customer service is the tried-and-true way of keeping customer complaints under control. When you have a good relationship with your customers, and they don’t just feel like a number, they’re more likely to call you than rush into initiating a chargeback. Enforce a customer-centric client satisfaction policy, and do whatever you can to provide your customers with a positive shopping experience. Most importantly, always remember to perform your due diligence.

Contact TM&S for more information about chargeback prevention services and tools.