Don't Let the Chargebacks Drag you Down!

One of the realities of running an ecommerce website is that at some time or another you will be hit with a chargeback. If you’re not prepared, this can not only create a horrible feeling but also harm your business financially, as well as your relationship with your acquiring bank. 

The first thing to do is not to panic, through some basic business practices and good communication across your business you can ensure you minimise your exposure and keep your business on a steady growth path. 

Chargebacks are a reality of selling goods and services online. They can range from the out-and-out fraudsters who spend time and money defrauding yours (and many other) businesses out of money; through to so-called friendly fraudsters who know that banks will give the cardholder more value and attention than the merchants. Typically, cardholders have 6 months after a transaction to initiate a chargeback, whilst merchants have just 14 days to contest them. It is surprising that criminal fraud only makes up at most 10% of most online fraud. 

Merchant error, ie where incorrect data is passed, refunds are not processed or the product is not as described makes up between 20-40% more and the remainder actually comes from friendly fraud. It is horrible to think that you offer a product/service to a customer and they have the audacity to go to the bank and demand a chargeback, normally before even bringing any issue (if there is one) to you first - essentially getting the benefit of your hard work free of charge. 

The following are some observations we have made at Trust My Travel based on our experience with chargebacks. They aren’t necessarily rocket science and there are some fantastic fraud detection tools out there (we use Kount) but we suggest employing these practices in conjunction with such tools. 

Prevention

It sounds easy but do you have in place simple tools to eradicate obvious fraud? Your gateway will typically offer you an address verification service and velocity check, as well as IP checks. You can also restrict cardholders based on where they come from – is the customer going to be taking a city tour of Paris booked today for tomorrow when they are still in Australia?

Likewise, have a clear descriptor on your statements as to who you are so when a customer looks at their statement they immediately understand what the charge is for. You should also always issue a receipt clearly showing what the charge will appear as and what it was for. 

Identification

You have done what you can to prevent fraudulent orders getting through but that is never fool proof without completely restricting your online conversion rate. So you now need to evaluate what orders you have taken. Where you have hundreds of payments a day, this simply isn’t practical to do manually so we do recommend a fraud analysis tool. Often though a cursory look at your order records can identify suspect bookings or patterns immediately. We will occasionally have bookings where the customer name is written in Capitals and 9 times out of 10 this proves to be fraudlent. Likewise do we expect customers from a certain region to be buying tours in another region which does not fit the market analysis of that company? It is not fool proof but it can help you to understand patterns and vulnerabilities that you can then take action to stamp out. 

Communication

We always say to members wherever they are in the world if you have a booking that looks wrong make contact with the cardholder – are they staying where they say? Does the phone number they provided work? Whatever you can do to validate that they will be turning up for your service. 

When a chargeback is incurred we also recommend making contact with the cardholder if the chargeback isn’t valid. The criminal fraudsters will not reply but in the case of merchant error or friendly fraud the work in communicating with the cardholder and trying to understand their reasoning and work out a resolution can see that chargeback being reversed. Remember almost 90% of your chargebacks is likely coming from the latter two groups so it is worth the time and effort to ultimately save you money. 

Also don’t shy away from communication with your acquiring bank. Keep them informed as to the issues you may be having and collectively you can work together to resolve them. If you ignore them you don’t have a partner to fight a problem that everyone selling online is faced with at some stage – they understand and want to retain your business if possible. 

Documentation

Always be clear on the documentation you present to your customer and also what you collect from them on the ground. In the event of a chargeback the burden of proof is on the merchant to prove that the cardholder did travel. No shows are a classic example where even if your terms state that full payment is due more often than not Visa and MasterCard will side with the cardholder. 

Ensure that you send clear detailed receipts with the appropriate contact details, meeting points etc on. We also recommend that if you have vouchers you have the ability to either electronically validate or alternatively get the customer to sign for your collection, or to sign a register, disclaimer, customer survey or something just to actually prove they took the tour. 

Be vigilant, and employ tools that will help analysis the data and communicate with everyone in the chain. Trust My Travel have been very successful at defending chargebacks where customers have posted photos of the tour on Facebook , or written glowing references and then tried to get their money back saying they didn’t take the tour. 

Chargebacks need not be the downside of your business, nor need they cause you worry and sleepless nights – adopt a clear, honest approach and you will go along way to fighting the fraudsters – both criminal and ‘friendly’.

Trust My Travel provide financial protection to travel companies around the world, in addition to offering managed merchant accounts (including fraud prevention) and local supplier payments. To speak about your travel payment needs please contact us at [email protected] or phone +44 1780408121.