Avoid credit card fraud and manage chargebacks in-store
If you accept payment cards at your business, you run the risk of being faced with chargebacks at one point or another. A type of disputed transaction, a “chargeback” is when a cardholder requests that a transaction be “charged back” to his or her account for some reason. Your payment processor will alert you to a chargeback, usually through your data and reporting application.
Your processor should—at the minimum—provide guidance on how to respond to the chargeback for your best chances of winning the case. Depending on your setup with your processing partner, they might even work the chargeback case on your behalf. Either way, you need to know the ins and outs of protecting your business against disputed transactions and how to best respond to them when they do crop up
Why chargebacks happen
Chargebacks happen for a wide variety of reasons. Here are some of the most common scenarios in which your business might be presented with a chargeback:
- The customer claims he or she did not authorize the transaction, meaning that fraud is suspected on the account.
- The customer says that the goods and services received for the amount paid did not meet expectations or were not carried out according to a signed contract (such as in the case of catering for a wedding, for example).
- The customer claims to have never received the items ordered, as in the package never arrived for an online order charged to his or her payment card.
- The customer returned goods to store location or an eCommerce site and a credit was never issued to his or her card account.
- The customer was double-charged for a single transaction, which often occurs due to technical problems on POS terminals, communication issues between terminals and servers or employee error.
If a chargeback is made at your business for the last two reasons cited below, expect to be held liable for the chargeback. If the customer has documentation (i.e., sales slip, and credit card or bank statement) proving these situations, the merchant will need to correct the problem.
Tips on protecting your business from fraud-based chargebacks
As part of an all-encompassing fraud protection strategy surrounding your business, your merchant services provider should help you understand how to thwart chargebacks before they happen. Here are some best practices to have in place to prevent chargebacks from striking your business:
- Require photo identification. Stopping fraudulent transactions before they ever occur is key to reducing your risk of chargebacks due to fraud. Train your staff to require current photo identification before accepting a card or check payment. They should make sure the name on the customer's payment card or check matches the name on their identification, as well as the photo on the ID matches the person holding the card. If you cannot match the identity of the person making the transaction to their ID, you are well within your rights as a merchant to ask for another payment type, such as cash.
- Know the hallmarks of fraud. Another aspect of training your staff to help avoid fraud—and related chargebacks—is identifying the hallmarks of fraud.
Here are some in-person “red flags” to know:
- The numbers on the payment card look to be printed unevenly or don’t line up straight across the card (likely printed with a fraudulent card-pressing machine -- not by a legitimate financial institution).
- The payment card is not signed on the back signature panel—confirming a customer's identity by matching the name on the card before running it will help ensure the transaction is legitimate in these cases.
Here are some possible signs of fraud when it comes to online payments:
- Multiple transactions (perhaps even small dollar-amount transactions) are run on a single payment card over a short period of time.
- Multiple transactions are made from the same IP address (computer location) over a short period of time.
- There is an unusually large transaction amount that is not normal for your shoppers or business type (won’t necessarily be applicable to companies with high-priced goods).
Tips on protecting your business from other types of chargebacks
Here are some tips on protecting your business from being faced with chargebacks in which the actual cardholder is involved in the transaction, rather than being initiated by an identity thief:
- Keep good records. Follow best practices when it comes to saving paper copies of signed sales receipts and contracts in an organized filing system, making it easy to retrieve this information if you’re presented with a disputed charge. Your payment processor will be able to help provide guidance on how long it is necessary to save such hard-copy documentation.
- Issue refunds when it makes sense. If a long-time customer brings a chargeback against your business because he or she claims the goods received were not up to your usual quality standard, it may make the best business sense to just issue the chargeback. Truly, “that level of commitment [to just issue the chargeback] could help customers see you are willing to work with them without the hassle of a chargeback” (Source: MarketingProfs). Oftentimes, it’s not worth losing a good customer over one incident.
- Keep things moving. When a customer places an order or signs a contract for services, make sure everyone has a clear understanding of when those products or services will be delivered—and make sure you keep your word. Consider the following: “The longer your business holds a customer's money without providing those goods or completing the requested services, the more likely that person will be able to initiate a chargeback” (Source: MarketingProfs). Delivering what your customers have paid for within quick timeframes can help your business avoid being faced with a chargeback by an angry customer claiming that he or she never received the goods or services for which they paid. Keep good business practices and don’t hold your customer’s money for an undue period of time before delivering on your end of the deal.