How to prevent chargebacks on a credit card transaction
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.