Chargebacks and Chargeback Management | Card Not Present

CHARGEBACK BEST PRACTICES: 3 TACTICS TO WIN

1. USE YOUR DATA [organize | analyze | understand]

Reporting (tying everything together) is your best tool
• Track chargebacks from bank to payment system to receipts to credit card.
• Don’t try and take it on by yourself. Engage sales, marketing and data
analytics teams.

Create a Paper Trail
• Collect customer and purchase information.
• Keep your filing system organized for easy access.
• Keep copies of receipts, order forms, tracking numbers, emails & customer
communications.
• Use email for sending copies of receipts.

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Take a Multi-Layered Approach
• Look at reporting by date of transaction, not date of the chargeback.
• Don’t count your win rate based on the first chargeback. Wait 30 days, then look at how many chargebacks you won the first time didn’t come back a second time.

Conduct Root-Cause Analysis
• Review past and current chargebacks. (what has changed?, what were the true causes?)
• Separate chargebacks by reason codes and products. (By analyzing reason codes, merchants have discovered supply chain and customer service issues, among other internal issues, that were the root cause of many chargebacks)
• Know the “entity” behind each transaction.
• Don’t take the bank’s word for it. The easiest way to file chargebacks at many issuing bank call centers is as “fraud.” This doesn’t mean the chargeback is actual fraud so check the reason codes and connect them to your records directly.

Realize that the chargeback fight is stacked against you
• Don’t give up. Be prepared for customers to file and refile disputes with third-party payment providers and for the system to be biased toward them.

2. COMMUNICATE CLEARLY TO PREVENT CHARGEBACKS

• Provide customers with regular status updates on each order and give them access to see what’s happening in their accounts.
• Be proactive reaching out to your customers both in email order confirmations and in your packaging/letters to encourage your customers call you first.
• Make sure the merchant descriptor your processor has you categorized as will
  be easy to recognize on customer card statements and online banking portals.
• Keep multiple friendly lines of communication open.
  [utilize email, text, chat, calls, letters & social media]
• Stick to provable facts in your rebuttal letter and clearly explain context and
  meaning to demonstrate why the original transaction should stand.
• Find out why your customers are calling their bank and not you.
  a. Check your customer service call center wait times.
  b. Ensure your terms and conditions are clear and communicated.
  c. Audit your website e-commerce user experience by purchasing your products, go through the return process, call customer service and look for weaknesses.

3. UTILIZE YOUR MERCHANT SUPPORT STRUCTURE

• Work with your processor and follow their guidelines.
• Check if the acquiring bank is involved and have them handle chargebacks that qualify for automatic representment.
• Contact your processor to see if there’s a way you can provide documentation better for them to easily approve your representment and push it on to the issuer.
• Pick your battles, consider using a vendor to respond to disputes.

VISA’S VCR: 10 RULES TO WIN

1. Visa has consolidated reason codes into four categories

• 10 - Fraud
• 11 - Authorization
• 12 - Processing Errors
• 13 - Consumer Disputes

2. These four categories route disputes through two distinct processes

• Allocation (10 and 11)
• Collaboration (12 and 13)

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3. There are 25 new reason codes that will fall within the four categories

4. The end-to-end cycle for dispute resolution has been shortened to 30 days

• Allocation disputes (fraud & authorization issues)
  must be responded to by day 18
• Collaboration disputes (processing errors & consumer disputes)
  must be responded to by day 24

5. No provisional credit will be given when challenging Allocation disputes

6. Merchants can only challenge fraud and authorization disputes if they have clear “compelling” evidence. These include:

• Delivery confirmation receipt
• Signed order
• Photograph
• Contract
• Sales receipt

7.Terminology Changes

• Chargeback becomes Dispute
• Representment becomes Dispute Response/Pre-Arbitration
• Chargeback Reversal becomes Dispute Reversal
• Representment Rev/Adjustment becomes Dispute Response
  Reversal

8. Visa will block invalid disputes through two primary rules

• Customer filed after the allowable post-purchase timeframe
• Customer filed after a merchant return has been issued

9. How will you know if you won or lost a Visa dispute?

• Allocation Dispute: the category code “OPAACCEPT” will
  signify you won the challenge and “OPADENY” will signify the
  chargeback was lost.
• Collaboration Dispute: If you lose the dispute you will get a
  new dispute with a reason code of 98 and will need to match
  the dispute with a reason code of 98 to the original dispute by
  matching the merchant order number.

10. Flowchart for the new dispute process

5 MISTAKES MERCHANTS MAKE THAT LEAD TO MORE CHARGEBACKS

Congratulations—you survived the crush of holiday sales! But now that the dust has settled and business is returning to normal, the post-holiday chargebacks are coming in.

Disputing chargebacks can be tedious and cumbersome, not to mention discouraging; the process doesn’t favor merchants, as banks and credit card companies require little proof on the part of the consumer to substantiate their claims.

Between the complexity of the chargeback process and the sheer volume of transactions and associated information that pour in during the holidays, mistakes are easy to make when challenging a chargeback. But they’re even easier to avoid by taking steps to prevent them in the first place.

Not communicating clearly with customers

Reduce the number of chargebacks due to lack of communication by adopting features that offer transparency. Provide regular updates about the status of an order, empower customers to see what’s happening in their accounts and optimize the payment process.

Making things clear for your customers increases their trust in your business and decreases the confusion surrounding purchases that often leads to chargebacks.

Lacking a paper trail

It’s a lot easier to fight chargebacks when you’re keeping detailed records of all transactions. Collect customer and purchase information and screenshot it—this will help prove that a customer actually purchased or received the item in question.

Use email correspondence and have copies of receipts and related paperwork; fighting a chargeback usually involves providing signed delivery slips, CVV slips and emails between your business and the card holder. Ensure your filing system is organized and allows easy, fast access to this information.

Not working with your credit card processor

Take advantage of the knowledge and experience your credit card processor has combating chargebacks. They’re also invested in you winning the fight, given that they stand to benefit from it as much as you do. So, work with them to make sure you have all the tools at your disposal to be successful.

Not checking whether the acquiring bank is involved

The acquiring bank—the financial institution that maintains the merchant’s bank account—often handles chargeback disputes, but many businesses don’t determine that before challenging a chargeback. Some chargebacks qualify for automatic representment, so it’s a good idea to check if the chargeback you’re disputing is already being handled by the acquirer.

Ignoring your metrics

Succeeding at scale will rely in part on tracking chargeback metrics. For example, having a chargeback rate in excess of 1 percent might indicate that your site is being used by fraudsters to test stolen credit cards or that account takeover is wreaking havoc on your customers.

Maintaining a chargeback rate of 1 percent or more means running the risk of being labeled a high-risk merchant by most credit card companies, and being enrolled in a chargeback monitoring program. Not only is this a bad look for your company, it can be a pricey punishment; Mastercard’s program requires the merchant to provide regular reports on their activity, with a charge of $300 to $500 for each report.

Chargebacks don’t have to be a nightmare. Staying organized, attentive, and thorough will help you keep track of all of the information you’ll need to effectively and successfully prevent and dispute chargebacks, during and long after the holiday rush.

E-GIFT CARDS & FRAUD - 5 WAYS TO AVOID A CHARGEBACK HANGOVER IN JANUARY

UNDERSTAND THE PROBLEM

According to Giftcards.com, electronic digital gift cards are the fastest-growing segment of the gift card industry, growing 29% annually. But, as popular as they are with consumers, they are just as popular to fraudsters!

• E-gifts are instant, no shipping address is needed; they can be easily transferred to others.
• Demand in the secondary market make them easy to monetize.
• E-gift cards have one of the highest fraud attempt rates of all products.
• Holiday orders can appear risky because the shipping address of a gift often does not match the billing address, therefore the risk of canceling a legitimate order, prompting a lost sale and an unhappy customer is greater than at any other time of year.

UNDERSTAND THE SECONDARY MARKET FACTOR

Secondary markets have emerged in the last few years enabling consumers to buy and sell gift cards at a discount. Some buy cards directly from consumers and resell them. Others take the form of online classifieds or auctions. A site full of willing buyers is attractive to fraudsters looking to monetize their ill-gotten e-gift card codes as shoppers are looking for a deal. But, beyond providing an easy way to
monetize fraudulently purchased gift cards, secondary markets pose a significant challenge for merchants…

• When fraudsters use stolen credentials to buy a gift card, the victim files a chargeback or reports it as
  confirmed fraud.
• If a fraudster has sold the card to a secondary-market site to monetize his/her theft, chances are that
  the value of the card will not be there when the legitimate buyer visits the secondary site.
• With funds no longer available on the card, many consumers assume it’s the retailer whose name is on the gift card that must guarantee the funds on the card.
• It can get even more complicated when the fraudulently purchased gift card in question was purchased as a gift, adding a third “customer.”

IDENTIFY E-GIFT CARD FRAUD

Merchants report two main methods of fraud targeting e-gift cards: standard credit card fraud and account takeovers. How do you spot them?

• Standard credit card fraud: Look for nonsensical e-mail addresses, purchaser or recipient names, the same purchaser and recipient name and e-mails, multiple purchase attempts on the same device ID, multiple failed purchase attempts prior to successful authorization or not customizing the gift message.
• Account takeover fraud: Identify by tracking the number of log-in attempts on an account or when the billing information or e-mail address is changed on an account log in.

APPLY BEST PRACTICES TO PREVENT E-GIFT CARD FRAUD

• Require gift card purchases to go through the same process as other transactions – but have separate rules that apply to these transactions, as well as their own queue.
• Assign more senior risk analysts to the gift card queue because e-gift cards have a higher risk of fraud. This will enable consistency and expertise, maximizing the ability to cancel these transactions, while minimizing the risk of canceling legitimate transactions.
• Schedule regular meetings once a week for these analysts to share specific tactics, risky identifiers and patterns they’re observing.
• Remember that e-gift cards are essentially cash, so monitoring and canceling fraudulent gift card purchases should be a business priority.
• Have a system that can track gift card activity “from time of purchase to time of redemption,” allowing merchants visibility into activity.

CONCLUSION

With the holidays quickly approaching, establishing a clear plan and process for identifying and preventing fraudulent gift cards while reducing the impact to legitimate gift-buyers should be a priority for any business selling gift cards online. Creating policies and processes while working with the customer service team will eliminate a lot of headaches, especially in January, when many recipients start to
redeem their gift cards.

THE MERCHANT'S GUIDE TO TC-40

Many merchants have no inkling of the existence of TC-40 reports. So, what are they, why do they cause declines, where can merchants get theirs and how can they use them to increase authorizations and customer satisfaction?

DEFINITION OF A TC-40 REPORT

Every time a cardholder claims fraud, issuers file a TC-40 claim for that transaction. These claims are  then reported to the card brands, out to all issuers, and to the merchant’s acquirer in a report known as the Risk Identification Service (RIS) Report for Visa transactions and System to Avoid Fraud Effectively (SAFE) report for MasterCard transactions. These reports contain the raw data for each transaction including issuer BIN, region, currency code, fraud postdate, etc.

1. Company begins to experience a spike in declines.
2. This causes unhappy and confused customers to call their issuing banks. They had more than enough credit to cover the purchases, so why couldn’t they complete the transactions?
   
   
   

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3. The banks told these customers this merchant was associated with fraud and the charges were declined for their protection. These customers wanted to pay, had funds to pay, but their bank was not letting them, frustrating both the customer and the merchant.
4. A look into the decline logs told the merchant several  issuers were declining all its transactions—a perplexing state of affairs because its chargeback volume was minimal. The company finally, through one of the card brands, found the declines were based on something
called a TC-40 report.
5. More than likely, if you’re like most merchants that we meet, this is a scenario that could very easily happen at your business. Next we will share ways to protect your business by providing some insightful information around TC-40s.

TC-40S VS. CHARGEBACKS: CHARGEBACKS AND TC-40S TRACK FRAUD, THEY ARE DIFFERENT IN MANY WAYS

HOW DOES THE FRAUD INCIDENT GET REPORTED?

• TC-40s are typically reported within days, if not hours, of the cardholder reporting fraud.
• Chargebacks can take up to three months for a merchant to be notified.

HOW DO THEY OCCUR?

• Chargebacks encompass a variety of reasons beyond fraud such as customer dissatisfaction and not receiving goods.
• TC-40s are only issued due to customers claiming fraud.

IMPACT ON THE MERCHANT?

• Chargebacks have a direct financial impact on the merchant, resulting in a reversal of funds to the cardholder.
• TC-40s are trickier because it is a cost for issuers to process chargebacks (just like merchants), most have an internal policy
  that transactions under a certain amount will not be charged back, even though they have to cover the cost of the disputed transaction themselves. Also, it is possible for a merchant to be fined by a card brand if the volume of TC-40 claims exceeds a certain threshold. If a merchant exceeds the threshold for more than 10 months, they may not be able to accept a certain brand’s cards.

HOW DO I KNOW IF TC-40S ARE IMPACTING MY BUSINESS?

RESEARCH LOW-TICKET TRANSACTIONS

• Investigate your decline log. Separate the declines by issuer to determine if any issuers are declining almost all transactions.
• Review decline reason codes, though most use “general decline” in these cases.

TRACK CUSTOMER CALLS

• If you see a spike in customers saying their cards were declined but they don’t know why, this also may be a symptom of this issue.

CONTACT YOUR PROCESSOR

• to see if they track TC-40 volume. If they don’t, they may be able to contact the card networks on
  your behalf to determine if this is impacting your business.

WHERE DOES A MERCHANT FIND ITS TC-40 REPORT?

1. While these reports are used primarily by issuers and card networks to assess the risk of a merchant, this data is also always passed on to the merchant’s acquirer and/or merchant processor, typically on a daily basis. Whether the merchant has access to this report is at the processor’s discretion and that discretion can be difficult to come by, but it is the first place a merchant should look.'
2. Another place to look for this report is with services that partner with issuers to offer “chargeback alerts.” Several merchants have reported that most, if not all, of the transactions listed on these daily reports come from TC-40 data. While you may end up refunding transactions that do not result in a chargeback, the benefit of acting upon this data quickly could be invaluable.

WHAT SHOULD A MERCHANT DO WITH THIS DATA?

If you are able to access this data, the hard part may not be over. It is likely you will receive the raw reporting data from your processor and
you may be confused by some of the descriptors it contains. Only worry about the ones you understand, remembering that several parties
access this data and not every line item will pertain to a merchant. Chances are you will need to research each claim, matching it up with
the account information in the merchant database. Additionally, these transactions should be marked as fraud and probably refunded (to
avoid a chargeback).

The faster these transactions are marked as fraudulent in your system, the faster your business will be able to identify and prevent similar fraud. When a fraudster finds a way to get through without the transaction being canceled, they exploit the vulnerability as long as it is present, resulting in high volume of fraud.

The difference between identifying this within days through the TC-40 report and waiting up to three months to receive a chargeback could be millions of dollars. This also will result in fewer transactions being reported to the RIS and SAFE reports, which could mean more authorizations from cautious issuers.

7 INSIDER TIPS TO HELP YOU WIN YOUR CHARGEBACK REVERSAL

If a consumer files a dispute against your business, you can either accept the chargeback or challenge it through what is known as representment: merchants literally “re-present” the transaction to the issuer in hopes of having it reversed.

Winning a chargeback reversal is not impossible, but the procedure is complicated and time-consuming, to the point where many merchants feel the end doesn't justify the means.

For long-term sustainability, however, ignoring chargebacks is not an option. In the short term, chargebacks are a huge drain on your resources; over time, however, disregarding them could put your company out of business.

Fighting for Chargeback Reversals

Merchants should challenge as many chargebacks as possible. You can increase your odds of winning by using these tips from industry experts to get started.

Tip #1: Fine-Tune Documentation

To win a chargeback reversal, you must provide adequate "compelling evidence,” or documentation that contradicts the cardholder's claim and supports your case.

Be sure to keep—and file—copies of receipts, order forms, tracking numbers, emails, and other customer communications. The stronger your paper trail, the more effective your case.

Tip #2: Write a Rebuttal Letter

You’ll also need to write a detailed rebuttal letter for each dispute. Stick to provable facts and clearly explain context and meaning to demonstrate why the original transaction should stand.

Tip #3: Act Quickly

All parties in a dispute must abide by pre-determined time limits—in some cases, 5 to 10 days after receiving notice of the chargeback. Worse, the timeframes vary based on the card network, the processor, and other factors. The sooner the chargeback reversal process is initiated, though, the more likely it is to succeed...so make a point of responding in a timely manner.

Tip #4: Understand the Reason

Every chargeback dispute comes with a reason code that shows the reason the cardholder gave for filing the chargeback. Each network has its own codes, but the reasons from card brand to card brand are similar.

Knowing the different reason codes can help win chargeback reversals, but does little to help prevent future disputes, since reason codes seldom show the real reason for the chargeback (typically friendly fraud).

Tip #5: Avoid Unwinnable Situations

While fighting for a chargeback reversal is never easy, some chargebacks are significantly harder to fight than others: winning a dispute that originated in the US or the EU, for example, is easier than reversing a chargeback from Russia or Indonesia. Avoid these unwinnable situations if possible.

Tip #6: Learn from Your Mistakes

Win or lose, the savvy merchant will examine the outcome of every chargeback dispute for ways to better handle the next case. These "real-world" experiences are the best barometers of your actual chargeback situation. Monitor every dispute and use that information to devise a long-term mitigation strategy.

Tip #7: Get Professional Help

Every invalid chargeback should be challenged, but that doesn't necessarily mean you should do the fighting. Turning to professionals is almost always the most cost-effective solution.

Filing chargeback reversal cases yourself means

• Reallocating resources that could be used to grow your business;
• Learning industry jargon that is technical, constantly evolving, and inconsistent; and
• Trying to affect change while not having the necessary insider access.

The sad truth is, merchants who do their own representment will lose over 70 percent of their cases.

3 TIPS FOR SURVIVING THE POST-HOLIDAY CHARGEBACK RUSH

A record-breaking season of holiday shopping is over, having generated $7.8 billion in revenue. That means the chargebacks have just begun! The massive increase in order volume over the holidays can wreak havoc on shipping companies and the USPS. Before Q4, FedEx and other companies like to set customers' expectations low by letting them know that their items might arrive late—or not at all.

Dishonest customers often take advantage of that messaging to file a chargeback, claiming they never received an item that's been sitting under the tree for weeks. And, it's not just scammers: impatient shoppers whose items might be on the way, but who are frustrated with the delayed arrival time, might file chargebacks too. The post-holiday chargeback rush is no joke. Here are three tips to help you make it through.

Don't hesitate to contact the cardholder

Sometimes a chargeback is friendly fraud, but other times it's just an honest mistake. Maybe the buyer didn't recognize the charge on their card because the bill was vague. Maybe their kid got hold of their credit card or phone and placed an order. In these cases, the customer probably doesn't want or need to go through the lengthy chargeback process—and you certainly don't.

Reach out to the buyer and see if there's a way to resolve any miscommunication, which might prompt them to drop the chargeback. Sometimes, all it takes is for the buyer to hear a human voice on the other end of the phone: a customer service rep who cares enough to have a quick chat. To sweeten the deal, some merchants offer a promo code for future orders if the buyer drops the chargeback.

Be fast

This time of year is basically Black Friday for payment processors. Processors handle thousands of cases after the holiday season. The agent in charge of the case is looking for any reason to close the case quickly. To speed things up, some payment processors have time limits on cases. Visa Claims Resolution shortened the timeframe to challenge a dispute to 30 days. It's generally a good practice to respond to your payment processor within seven days.

Think you need more time than that? You might be taking too long to put together your cases. Remember, the customer service reps reviewing chargebacks don't have time to read a book—and don't assume they would understand the book you've written! Make your point clearly, quickly, and concisely.

Document everything.

Ideally, you'll already have a paper trail by the time a chargeback rolls in: shipping date, email correspondence with the customer and payment info. In a pinch, you can use screenshots of billing/shipping info and IP addresses from your antifraud tool.

Once armed with this information, you'll be ready to present your case to the payment processor. Make sure the information is clear and typed (the reps reviewing chargebacks often use archaic software that might make handwritten pages difficult to read). Be thorough, but concise. Good luck!

4 WAYS YOU CAN FIGHT FRIENDLY FRAUD CHARGEBACKS

Even if you’ve been good all year, the holiday shopping rush always ends up dropping the worst kind of coal under fraud analysts’ trees: chargebacks. Friendly fraud chargebacks—when the cardholder disputes legitimate transactions—are among the worst pain points for e-commerce sites. But by harnessing the power of your fraud-fighting tool, you greatly increase your chances of recovering funds from friendly fraud chargebacks after the holidays. Here’s how.

To dispute a chargeback, you’ll need to gather “compelling evidence.” According to Visa’s chargeback dispute rules, merchants who present compelling evidence can prove a chargeback is invalid and recover funds. Compelling evidence includes:

1. Photographs or emails that prove that the person receiving goods or services is also the cardholder
2. Proof that there have been one or more undisputed payments for the good or service
3. Proof that the goods or services were delivered
4. Description of a downloaded good or service, the date and time it was downloaded, purchaser’s IP address, device ID, name, and email address

Though the “compelling evidence” language is unique to Visa, the dispute process is not. For example, the process for disputing Mastercard chargebacks doesn’t really differ from the Visa process. Fortunately, your fraud-fighting tool can grant you easy access to much of this compelling evidence.

Step 1: Gather identity information

Your fraud tool’s transaction review screen can show the user’s billing and shipping address, their device ID and their IP address. Use a screenshot of this screen to show that this information matches the cardholder’s information. Some consoles might have additional information you can harness too. For example, the Sift console also draws on the customer’s social media information, which can help verify their identity.

Step 2: Look up purchase history

To dispute a chargeback, it helps to show that the cardholder really did set up an account that was verified by the merchant. Use your fraud tool’s purchase history screen to see if the cardholder has a consistent transaction history with the same email address and phone number. That demonstrates the cardholder made purchases in the past and never filed a chargeback.

Step 3: Check geographic proximity

Many fraud tools contain a review screen that shows geographic proximity between the billing and shipping addresses. If they’re close, or the same, then the chargeback might not hold water. Coming out of the holidays, you might see an influx of legitimate transactions in which the cardholder shipped an item to a different address. To explain legitimate discrepancies, check to see whether the surnames match, whether the billing customer shipped the item to a business or university, and so on.

Step 4: Dispute the chargeback

Now that you’ve gathered your compelling evidence, it’s time to dispute the chargeback. The benefits extend beyond recouping losses; a chargeback dispute is also a helpful learning tool. The dispute process can help you gain insight into why customers are initiating chargebacks. You can then use those learnings to disincentivize them from doing so in the future.