The e-commerce market has recently seen some exponential growth, which makes buying whatever you want from wherever you want much easier. But this luxury also gives way to numerous fraudulent activities. One of the most concerning forms of scams for merchants and retailers is chargeback fraud, which can lead to stolen revenue, damaged customer relationships, and even jeopardized payment processing for the business. This article explains chargeback fraud and shares some useful prevention tips.

After making an online order, customers can request a refund, or chargeback, from the bank if they’re dissatisfied with the purchase. Scammers can contact a card issuer for a refund by citing reasons like never having received their order or that they didn’t authorize the transaction. Banks tend to believe the claim insufficient evidence, inflicting a loss of goods and finances on the merchant. Thus, knowing the difference between a chargeback and friendly fraud is crucial, the latter happens due to an honest mistake on the customer’s part. In a friendly fraud, customers normally request a chargeback from the bank because they forget they had made the purchase or don’t realize that a family member had bought something with their credit card.

Chargeback fraud happens mostly online and is becoming increasingly common. Fortunately, there are effective ways through which e-commerce merchants and retailers can prevent chargeback fraud. Here are the best chargeback prevention tips every business must follow:

Employ strict card verification methods
Use software that can automatically check whether a shopper’s credit card billing address is the same as that submitted to the bank. If the address doesn’t match, you can decline the transaction. Note that many scammers secretly secure basic credit card information through phishing e-mails. So, you must ask for verification when customers make purchases using credit cards and implement two-factor authentication to further reduce the risk of fraudulent transactions.

Review suspicious orders
If someone places an unusually large order, makes back-to-back purchases in a short time, or has different billing and shipping addresses, that’s a red flag. Stockpiling items to resell and then demanding an illegitimate chargeback is a common modus operandi among thieves. Therefore, if you encounter such suspicious orders, it’s best to contact the cardholder to verify the transaction.

Confirm orders before and after the sale
Businesses often use software that sends an automatic email regarding purchase orders into the customer’s inbox as soon as they place the order and when the order is delivered. This way, you can keep customers updated with their shipment status, significantly reducing instances of friendly forms of chargeback fraud. In addition, such a step provides you with a traceable record of the order, which can be useful when your customers dispute transactions.

Enhance customer service
Improving your customer service is one of the most effective chargeback fraud prevention tips. That’s because some shoppers are inclined to file an invalid chargeback if they’re unhappy with the service or product offered by your business. But if you have a dedicated customer service team that is always available and ready to help, you can prevent customers from claiming chargebacks.

Use clear billing descriptors
Your billing descriptors must be clear and instantly recognizable on customers’ credit card statements, so they know exactly why they’ve been charged. If your customers don’t recognize your business’s name, they may erroneously assume that the transaction is fraudulent, and request a chargeback from their bank.