One day, an older (perhaps senile) man paid a visit to his doctor’s office for some routine blood work. The appointment went smoothly, he finished up, paid at the checkout window and the office continued business as usual.
A few weeks later, the doctor’s office received a disturbing phone call from the man’s wife stating that her husband had an erroneous charge on his credit card from their office. The office worker calmly explained that the charge was valid and that her husband had been in for blood work (they had the blood and DNA to prove it, not to mention his signature). The woman insisted, despite all the evidence that neither she nor her husband remember the appointment and demanded a refund.
This is an example of what we call a chargeback. Typically, the customer doesn’t even call the business, instead they call their credit companies claiming fraud or that they never received the goods or services. The business owner then receives a letter from their processor saying the charge has been reversed and is now under investigation. The senile patient example is for lightweights. Many criminals and fraudsters have made it their life’s work to take advantage of the market which heavily favors consumer’s rights (thanks to the credit card protection act).
When this happens, not only does the merchant lose the money and the cost of its goods or services they are also charged a small fee by credit card companies every time a chargeback is initiated by a customer. Not to mention that a business owner could lose their ability to accept credit cards if it has too many chargebacks.
“Friendly Fraud” is the term used for crimes involving chargebacks on the internet. Businesses accepting payments online not using secure payment techniques like address verification are most vulnerable to criminals using stolen credit card numbers for purchases. When the owner of that stolen card gets their bill and makes that fateful call – the merchant loses.
The Wall Street Journal Reported that Americans spent more than $200 billion on online shopping in 2011 and are expected to shell out $327 billion on Internet stores by 2016. This doesn’t even include consumers who are paying bills for services through online portals.
It’s not all gloom and doom. Although chargebacks are a very difficult thing for businesses to combat, things are slowly balancing out. According to Bob Sullivan’s blog on MSNBC.com titled The Red Tape Chronicles, “The "win" rates for merchants in the arbitrations are rising quickly. According to an annual Merchant Risk Council survey, it found that consumers lose the argument 44 percent of the time now, up from 30 percent three years ago.”
There are a several things business owners can do to try to prevent and combat chargebacks but here I will focus on the top three:
1) If you get a letter notifying you that there has been a chargeback on your merchant account, respond IMMEDIATELY. The longer you wait, the worse it gets and decreases your chances of ever seeing your money again.
2) If you are unable to swipe the credit card at a terminal, get a manual imprint of the card (On an imprint machine ensuring that imprinted receipt are locked in a filing cabinet for security). Make sure you have a SIGNATURE, a transaction date, an authorization code, purchase amount and your company’s information on the slip. ALWAYS make sure the signature and name on the card matches the information on a printed sales receipt.
3) If you are accepting online payments you NEED to have an address and a CVV2/CVC2 verification system as added layers of security (If you have questions about this contact us for some help). Keep a negative database of problem customers and identify high risk transactions based on strange activity. Print your phone number on all your receipts; this will allow for real customers that have a dispute to contact you directly.