How to Reduce Fraudulent Chargebacks

The easiest form of transaction to make a chargeback against is a Card-Not-Present or Cardholder-Not-Present (CNP) transaction. These occur when the consumer isn’t present in person when making a purchase.

CNP transactions can occur online, where card details are typed in and the customer’s identity isn’t verified – these are classified as CNP Ecommerce payments.

Alternatively, card details can be given over the phone to a contact centre agent or keyed into an automated IVR – these are known as CNP Mail Order / Telephone Order (MOTO) transactions.

The merchant may not have verified the identity of the person using the credit card, either because it’s quite difficult and costly to do, or it adds a large obstacle to the shopping experience for all customers. Unfortunately, many organisations struggle to combat chargebacks against  these type of transactions as they have limited evidence to prove the purchase was made legitimately.

Card-present transactions involve Chip and PIN payments, contactless/NFC or Mobile wallet payments, essentially payments where the customer is physically with the merchant when making the payment and able to verify their identity.

The key to reducing fraud is to take CNP transactions and high risk payments through a verification process to authenticate the customer. With Click 3D not matter how a customer wants to pay (online, over the phone, over email, etc) steps can be put in place to help protect the organisation.

3D Secure, or 3DS, is a service that helps card issuer banks authenticate the identity of online purchases. In order to complete the payment, a customer is prompted to enter a password that was created when the card was first registered.

For Visa, the service is called Verified by Visa, Mastercard has a similar system called Mastercard SecureCode and American Express has a solution called SafeKey.

An organisation can decide if it wants to use 3D Secure within it’s payment process, what the risk factors are that will trigger the service and how secure they want to make the transaction.

Using 3D Secure is a crucial step in reducing fraudulent chargebacks and credit card fraud overall.

The definition of “high risk” transactions can vary from business to business. It can depend on the type of products and services they offer, what industry or countries they operate in, the nature of their customers and finally how they take payments. What an organisation considers “high risk” may be different to their bank or PSP which sets the fee and percent rate for every credit or debit card transaction they process. For example, payments made over the phone where the customers’ identity can’t be verified are considered a higher risk to those which have passed through extra security steps, such as 3D secure.

Chargeback fraud occurs when a customer uses their card to make a legitimate purchase, to only then claim it as a chargeback, sometimes stating it wasn’t them who made the purchase. The goal being to keep the goods or to have still used a service without paying.

Credit card fraud occurs when someone uses stolen card details to purchase goods and services, leaving the victim to pay the bill. If a business doesn’t take the necessary steps to verify the customer’s identity, then they are obligated to refund the fraudulent order if a chargeback is claimed.

If you’re looking to protect your customer’s sensitive card details from potential credit card fraud, PCI-DSS accredited payment services can process valuable card holder data without it entering your organisation’s environment.