January 19, 2016
By Karisse Hendrick, Editor-at-Large, CardNotPresent.com
As retail merchants celebrate and recover from record-breaking sales in the 2015 holiday season, consumers are starting to receive their credit card statements, revealing their generosity and, perhaps, rethinking and regretting their holiday spending. While most consumers simply will resolve to spend less in the New Year and move on, many will call their credit card companies to dispute the charges in the form of chargebacks. The industry has dubbed this “friendly fraud,” though merchants know it’s anything but friendly.
Friendly fraud chargebacks can occur for several reasons beyond buyer’s remorse, though many merchants believe that is the main cause. They also can occur when a friend or family member borrows a credit card or if a customer service issue is not resolved to a buyer’s satisfaction. Because the “I don’t feel like paying for this” chargeback reason code doesn’t exist, merchants typically will see “goods not received,” “credit not processed” or “unauthorized transaction,” among others, as reasons for a friendly fraud chargeback. A fraud chargeback reason may be used in cases of friendly fraud, though a review of the original order can typically determine if the transaction was a result of true fraud or friendly fraud.
To Respond or Not to Respond
Managing chargebacks can be overwhelming for some companies. Because it can be time intensive to research the original transaction, determine the right course of action and create rebuttal documentation, some merchants choose not to review or respond to their chargebacks. There are benefits, however, these merchants may not have considered.
Benefit #1: The opportunity to recover revenue
According to a recent study from Javelin Strategy & Research, commissioned by antifraud technology provider Accertify, merchants dispute only 43 percent of the chargebacks they incur and, of those, they win 60 percent.
Benefit #2: Deterring future chargebacks
Chargeback management company Chargebacks911 recently conducted a 90-day case study with 12 merchants. The company found that when it actively responded to chargebacks on merchants’ behalf that came from the top 10 issuing banks in the U.S., there was a 9.34 percent reduction in future chargeback issuances. The reduction in chargeback rates was based solely on the merchant’s improved reputation—a direct result of positive impact through re-presenting chargebacks.
Benefit #3: Learning from chargebacks to prevent future losses
Reviewing the reasons consumers provide when they file chargebacks along with researching the original transaction can provide insight into process gaps that are leading to chargebacks.
New Arrow in Your Quiver
While some of the rules allowing cardholders to issue chargebacks are fairly liberal and the information necessary to have a chargeback reversed can seem difficult to supply, the card brand rules around CNP chargebacks have been evolving along with technology and the introduction of new business models. While a “signed sales draft” was once a merchant’s main weapon in documenting disputes, card brands have become more realistic and have expanded the types of documentation that can be used to prove a charge was valid.
Recently, Visa made more updates to the types of “compelling evidence” they will accept to reverse chargebacks levied against CNP merchants. Airlines, for example, now can provide a flight manifest to demonstrate that a traveler was onboard a certain flight; retailers can provide photographs or e-mails showing that the cardholder is in possession of an item in question and digital merchants can provide IP address, geolocation, device ID and additional information that may be gathered in a fraud review process to show the cardholder participated in the transaction.
While some merchants remain skeptical that this additional information will, indeed, be accepted and result in reversals, Los Angeles-based Verifi performed a case study recently that showed very promising results for CNP merchants.
“Visa’s compelling evidence changes became effective for any disputes processed on or after October 17, 2015,” said Lisa Tennant, vice president of Business Operations for Verifi. “Our initial analysis indicates fraud disputes processed in November 2015 are averaging a 20-percent higher success rate versus disputes processed in the three months leading up to Visa’s change. It’s important to keep in mind this is based on a small data set given Visa’s dispute cycles, so it’s too early to predict the full impact of Visa’s changes but we are optimistic that the changes will have a positive impact for our merchants.
“Win rates,” she adds, “regardless of payment brand or reason code, are directly determined based upon the presence of strong sufficient compelling evidence as required by Visa. Merchants achieving improved win rates can tie increases directly back to their ability to provide the additional compelling evidence supported by Visa.”
Chargeback Response Tips
Responding to chargebacks and the overall management process can seem overwhelming, especially if this has not been a business practice in the past. There is art and science involved in creating rebuttal documentation that garners a reversal. It’s important to learn which chargeback reason codes are most likely to be reversed and what documentation is needed for those disputes. Experts from three prominent chargeback management companies have shared tips for responding to chargebacks to maximize the likelihood of reversal.
- “First and foremost, remember your audience is the bank. Not all of the people who work at the bank will know what your business is or does, so you need to ensure the support being sent is concise, clearly shows what the consumer received and includes any additional data needed to debunk the dispute, such as a cancellation policy, proof of receipt, proof of usage, etc.” – Michael Mallon, Director of Global Product Management, Accertify
- “When it comes to chargeback reversals, we’ve found the old saying is true: do it right the first time. When merchants create the most compelling case possible and present an air-tight defense, they significantly reduce the odds of a second chargeback.” – Monica Eaton , Co-Founder and COO of Chargebacks911
- “Invest the time and effort to understand the payment brand rules and requirements for compelling evidence by chargeback reason code.” – Lisa Tennant, Vice President of Business Operations, Verifi
- “The comment you provide explaining the situation should clearly state that the chargeback should be reversed, per the included documents. And, if you are including compelling evidence, we have found it critical to say the support ‘includes compelling evidence,’ as the words seem to trigger a more open look at the support.” – Michael Mallon
- “If merchants are determined to do it on their own, they should make sure they have an expert on board who is well versed in the latest regulations and guidelines and has a solid understanding of reason code logic.” – Monica Eaton
- “Execute strong authentication steps to support reducing fraud up-front and capturing compelling evidence at the point of purchase.” – Lisa Tennant
As chargebacks from holiday purchases begin to arrive, consider following this expert advice. It could lead to more reversals and restored revenue. Responding also can reduce future chargebacks from the issuing bank and effectively demonstrate to consumers that friendly fraud is not tolerated at your business. If responding to chargebacks is still an overwhelming thought, consider contacting a chargeback management company to dispute these chargebacks on your behalf.
Next week CardNotPresent.com will provide more expert advice on chargeback management, including how to learn more about your business processes and how to prevent chargeback losses through studying the data from your current chargeback volume.