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Chargeback fraud prevention and your business

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Last editedJan 20232 min read

If you’re a merchant operating in the 21st century, an online retail presence is pretty much obligatory. It offers opportunities to trade all over the globe, meeting the growing consumer demand for e-commerce which is quick, simple and secure. GoCardless can play a huge role in helping any merchant tap into these opportunities, increasing cash flow, income and customer 

satisfaction. The more you trade, the more you have to learn to instigate chargeback fraud prevention measures. 

What is chargeback fraud?

Chargeback fraud is sometimes referred to as “friendly fraud,” but there’s really nothing friendly about it. Chargebacks were initially introduced in order to provide reassurance and extra security for customers paying with a credit or debit card. It is a mechanism which reverses the card payment, and can legitimately be used in the following circumstances:

  • The customer wants a refund on the basis of the quality or condition of the items

  • The customer doesn’t recognize the purchase on their account and thinks someone else made it

  • The customer has already agreed a refund and has yet to receive the funds into their account

  • An error has occurred, such as the charge being made twice or the amount being wrong

Chargeback fraud occurs in those cases when a customer has received the goods in question and keeps them, but then makes a claim on the basis outlined above. The claim is made to the issuing bank which does, in most cases, automatically issue the funds, then process the dispute with the merchant. It should be noted that some chargeback fraud can be accidental, if a customer doesn’t remember making an actual payment, or if another member of the family such as a child used their payment card without permission. 

When chargeback fraud occurs, a processing fee of between $12 and $25 is charged by the card issuer, on top of the refunded amount and the loss of the original stock. Clearly, this is going to have a huge impact on any merchant, and even worse is the fact that schemes such as Visa and Mastercard place merchants with a high percentage of chargeback transactions (0.65% and 1% of transactions respectively) onto a special program. Under this program, they will be charged fines and fees every month, until the ratio of chargebacks is lower. 

Chargeback fraud protection 

It’s clearly in the interests of any merchant accepting card payments online to have robust chargeback fraud protection measures in place. These measures can include the following:

  • Confirmation email for every order – this makes it more difficult for people to claim that they forgot having made a purchase, whether genuinely or as part of a fraudulent chargeback.

  • Signature on delivery – use a courier or postal option which requires the customer to sign on receipt of a parcel. This will provide you with proof of delivery for your records, and make it harder for a customer to fraudulently claim that a parcel never arrived. 

  • Payment methods – fraudulent chargeback is a problem which applies to credit and debit cards. One way of dealing with the problem is to use other payment methods. 

Partnering with a payment platform such as GoCardless means being able to offer the widest possible range of payment options, from direct bank transfers to ACH Debit solutions. Not only 

do ACH Debit payments decrease the incidence of chargeback fraud, they also result – according to a survey carried out by IDC – in merchants getting paid 47% faster.  

We can help

GoCardless is a global payments solution that helps you automate payment collection, cutting down on the amount of financial admin your team needs to deal with. Find out how GoCardless can help you with one-off or recurring payments.

Over 85,000 businesses use GoCardless to get paid on time. Learn more about how you can improve payment processing at your business today.

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Interested in automating the way you get paid? GoCardless can help
Interested in automating the way you get paid? GoCardless can help

Interested in automating the way you get paid? GoCardless can help

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