Tools to help reduce chargebacks
A Chargeback is a refund that consumers may initiate by contacting their bank over a debit item on their card by filing a substantiated complain. As there are many reasons to why and how a chargeback occurs, no one-size-fits-all approach can be used. This complex task of chargeback prevention needs to constantly evolve and adapt as technologies and the payment landscape changes. There are though several tools that are tested and proven that can help reduce a merchant’s chargeback percentage and help retain profits.
Tool 1 – Address Verification Services (AVS)
Card-not-present transactions tremendously increase the risk of chargebacks for merchants, service providers and banks. One of the simplest ways to reduce risk is to use Address Verification Services, which is an automated system which checks the billing address (listed in the transaction) against the address listed with the issuing bank. Merchants are advised to request shoppers shipping and billing address when purchasing and checking these with the help of AVS before the transaction.
After analyzing the address, AVS will provide a code such as
- ZIP code and address match
- ZIP code does not match, address matches
- ZIP code matches, address does not match
- Neither ZIP code nor address matches
- AVS Service not supported by issuer
A Zip code and address match is the best AVS rating and is a strong indicator of a legal/ authorized transaction.
Transactions with partial matches will need to be carefully reviewed by the merchant especially when in combination with
- Larger than normal orders
- Orders with big ticket items
- Overnight or express shipping
- Request to ship order to an address which is not the billing address
- Several units of the same type
- More than one order within a short time frame
Transactions with neither Zip code nor address matches are often indicators of suspicious activity unless in some situations the client might have moved and not updated his account with the bank yet. In these instances it is best the merchant takes the following precaution
- Call the purchaser to verify the transaction and question the irregularity
- Check the information in the transaction with the issuing banks file
“AVS service not supported by issuer” is a code associated to international orders and verifying these transactions are difficult as a signed copy of the sales receipt is required to be submitted via online or fax.
These simple steps help merchants gauge the risk involved and helps in the decision-making.
Tool 2 – Card Secure Codes
A card secure code is a three to four digit number printed on the back of the clients card as part of an authentication system by the card issuer to help merchants assure that the card is in the purchasers possession. This makes it harder for hackers to obtain the number as the code is printed on the card. Card security codes vary depending on the network.
- Visa – Card Verification Value 2 (CVV2)
- MasterCards – Card Verification Code 2 (CVC2)
- Discover’s – Card Member ID (CMID)
- American Express’s – Card Identification Number (CID)
American Express prints a four-digit code on the front whereas Visa, MasterCard and Discover use a three-digit code printed at the back of the card.
Requesting for a card secure code when an order is placed through a merchant reduces the possibility of fraudulent activity as it increases the chances of the actual cardholder placing the order.
Tool 3 – 3D Secure
Visa and MasterCard are the two main giants that process transactions and they are constantly releasing new security updates to prevent fraud and chargebacks. One of the most popular fraud prevention tools is 3D Secure, which is a joint imitative by Visa and MasterCard. Upon checking out an authentication page would appear which requires the client to key in a One-Time-Password (OTP), which would be sent to his/her mobile phone or a Verified by Visa Password in order for the payment to be accepted by the bank. This OTP is only known to you and your bank.
Each Card Network has its on product
Merchants are advised to work with their Payment Solution Provider to help incorporate a 3D Secure system into their checkout process as a fraud protection tool.
Tool 4 – Visa Account Updater (VAU)
Expired credit cards, new credit card numbers and invalid cards contribute to more than 50% of hard declines. In fact, roughly 3% of cards expire each month! Reducing these declines result in more successful transactions for repeat customers and subscription based payments. These are the following steps how Visa Account Updater (VAU) keeps information up to date.
- Whenever there is an update such as changes in the account number and expiry date, account closure, or “contact cardholder notices” the card issuer sends the information to VAU.
- Just before a payment is processed the merchants acquiring bank will send and inquiry to VAU with the details the merchant has on file.
- The VAU will then respond to each acquirer’s inquiry providing any updated information if necessary
- The merchant updates the customers billing information and processes the payment