I've often wondered about chargebacks and it's the main reason why I don't sign up for a merchant account. Now how or what would you use to minimize risk and how bad of a problem is it? While for some directories I can imagine that it would be an issue I would like to know how bad it is
Chargeback can be serious problem when the credit card or the account the person is using stolen, you can't do anything about that. It has happen to me, I had a $2000 charge back, then 2 months later they tell me the account that person used was stolen. Not only did I have to pay that back, but I also had to pay a fee too. For directorie it's not likely to happen.
Yep, I got stung for $4k early 2005 through a stolen credit card used to purchase a projector. The sod bought it through my online shopping cart.
I have been hit by chargebacks recently, some bastards spend like $200-$300 on my site with stolen cards each time. I had 4 chargebacks, out of probably 400 sales. I had also much more orders that were fraudulent but 2Checkout system caought it up. They have quite a nice system for that there, but it's not perfect.
For online merchants it is all about prevention as once a chargeback is filed, you lose. But they are not something to be afraid of. A well run business will have few-to-no chargebacks. It is rare to get a lot of them. As a business, if you get a lot of chargebacks, it is YOUR fault. Yes, every business will get some chargebacks. But if you get a lot it is because you are failing as a company on some level and need to do a serious re-evaluation of your business' operations. To prevent chargebacks, use your brain. You'd be surprised how effective it can be. Got a large order? Verify it. You should have information about the customer when they placed their order. Call them. Make sure they really did order it. If something seems odd about the transaction don't accept it until you can be sure it is legitimate. Got a large order from a high risk country? Don't bother completing it. One thing a lot of online businesses don't realize is you don't have to accept or honor any sale if you feel there is something wrong with it. Also, if you do business in high risk countries, well, you get what you deserve. They're high risk for a reason ya know.
Just get a fraud detection service that checks IPs against address, area code, open proxy, etc. They have BIN databases and you can have the customer give the card bank name and telephone number off the back and they can verify those too so you get more checks besides CVV, street and ZIP. You can actually do all this manually with for free on various websites unless you are doing high volume. If you have a merchant service provider that uses First Data, you should have access to mymerchantview that has a place you can enter CC numbers and it will return the card's issuing bank. If you're too high volume to do this, get the fraud detection suite. I would recommend those offered by your gateway or merchant service provider over third parites because I have found some of the well know third party services use outdated BIN databases that they patch together with whatever information they can get and when they can get it. There are a lot of clues that you can look for if you just read the documentation from your merchant service provider and the credit card companies that give you tips on preventing fraud.
It's always between 1% and 3% of sales, credit card companies know it as merchant solution providers, they won't close your account unless you are directly involved in a fraud scheme, or if your chargeback ratio jumps above 3%, well this can vary depending on what you sell. Chargebacks occur more often with info products or services. I've owned an online pharmacy back in 2004 and 1 order on 10 was denied as they were fraud attempts.
In the US once your sales hit 1% of chargebacks your account will be closed by your processing bank. The risk is just too high. If your chargebacks are 3% of sales your business really needs to re-evaluate what it is doing as that is an awful lot.
I have some custom modules setup in my cusomters profile, when a new account is created, I usually run a series of checks to verify who they are. IP from Nigera = Bad This are just some basic protection against frauds, but if they are professionals then unfortunately you may be out of luck. Just think of it like this, shoppers genenally have NFI about the creditbility of your store, they have no gurantee their credit card details wont be mis-used. However they will still give you a certain amount of trust to shop with you or e-commerce wil never work. So in saying that, you should place a little trust into your customers and do not let the thought of fraud set you back from starting your own business. Because you will get frauds in any business, but it is all about effective risk managment. I found a simple phone call to a suspicius order usually weeds a lot of fraudsters out. And if its too good to be true, then trust me it 9/10 it will be.
chargebacks suck! especially online. I get tons of calls each month "I never bought this. I've never even been to Tampa!" Usual response is "you bought xxx from xxxx site." Usually reply "oh thanks (then a 10 minute droning on and on about how the charge should tell them what they bought as if I can fix that)" Credit cards need to move into the 21 st century and allow merchants to find creative ways to cut down on chargebacks. Either by letting us put the website name on the statement (if the site name is different from the corporate name) or by letting us put what was purchased on the statement. Something. Chargebacks are a pain in the ass.