Any merchant that accepts credit card payments is bound to
deal with a chargeback at one point or another- it's par for the course when
operating a business. But that doesn't make it any easier. In fact, dealing
with chargebacks are one of the biggest hassles for merchants that accept
credit card payments—and can also be an unwanted, potentially large expense.
But there are steps merchants can take minimize their exposure to chargebacks
and mitigate their effect on business operations. Let's take a look at some
ways that you can reduce your business’s risk of chargebacks.
Reduce the risks you take for phone or online orders
If you take credit card payments over the phone for your
goods or services, it's important to have a process in place to verify that the
person on the other end of the phone or internet connection is, indeed, the
person to whom the card belongs. Here are some ways you can do this and
increase the security of your phone or online orders:
Address verification service (AVS). You should require the
customer to provide the billing address associated with the card when they
place an order. AVS checks the billing address provided with the address that
the card network has on file for that card. If the addresses don’t match, the
transaction won’t be approved.
CVV or CVV2 code. You should also require that online or
phone order customers provide the three- or four-digit CVV or CVV2 code that’s
present on the backside of the physical card. Oftentimes, hackers will not have
this information when they are attempting to use a stolen card number. Again,
if the code provided doesn’t match the card network’s records, the transaction
won’t be approved.
Watch for suspicious buying patterns. While not always a
certain indication of fraud, there are some suspicious buying patterns for
which you can watch on your internet and phone orders that should raise a red
flag. For example, a new or unknown customer who makes several purchases with
your company in an hour or a day could be a fraudster. Especially large orders
of the same item is another example of a red flag for fraud, as is delivery of
a large order to an address that is different than the address attached to the
card, without noting that the items are a gift.
Reduce the risks you take for in-person transactions
Whenever you or your employees take a credit card payment in
person, you should take certain measures to help protect your business against
fraudulent transactions. Here are some tips:
Require photo identification. As a first line of defense
against fraud and chargeback transactions, your business’s policy should be to
require photo identification for each and every payment card presented. If the
name on the card and the name on the photo ID don’t match, ask for another form
of payment. It’s as simple as that.
Swipe or dip the payment card. Always attempt to swipe the
card (or “dip” in the case of an EMV chip card) through your POS terminal
first. Make sure no one at your business makes a habit of key-entering the card
number as a primary method of payment entry.
Save signed receipts. Make sure your filing system for
saving paper copies of signed receipts is secure and organized so that you can
easily locate the necessary paperwork in the event you need to respond to a
chargeback request. Ask your payment processor about recommended ways to store
this information, and how long you should save paper records.
Be aware of potential red flags. You and your staff should
also be aware of potential indicators of fraud on the card itself. These
include:
Printed card numbers that don’t line up, or inconsistant
card fonts
Magnetic stripe that appears to be purposely damaged – so the
card number has to be manually entered
A "letter of authorization" indicating that the
person presenting the card is authorized by the cardholder to use it. Only the
cardholder can use the card; it is not acceptable to "borrow"
someone's card, regardless of the relationship.
The above precautions can help reduce your risk for
chargebacks and other types of disputed transactions, but you should be
prepared if one does occur despite your best efforts. Make sure that you keep
good records so you can respond quickly with the required documentation, in the
event that you are are presented with a chargeback.
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