Industry Insight: Chargebacks 101

Industry Insight UK

Chargebacks 101: what you should know…

Here at JetPay many merchants especially those new to CNP and eCommerce environments ask us about Chargebacks – what they are, what they mean and most importantly what they can do to prevent them happening. So in this Industry Insight well go under the hood of chargebacks to help merchants better understand the implications and how JetPays products and services can provide industrial strength solutions.

So, what is a ‘chargeback’?
Key in chargebacks into Google and youll be inundated with relevant results. Lets be more clinical in our approach however. The concept of chargebacks arose from the US Fair Credit Billing Act in 1974 to protect card paying consumers although the use of chargebacks has evolved since then both legitimately and criminally.

Chargebacks existed (and still exist) to offer reassurance to consumers about the safety of card usage. They also offer the consumer a vehicle to use to expose fraudulent merchants – big and small – allowing them to fight against dishonest merchant activity by forcing the online retailer to provide quality services and products. And as a merchant there will be genuine chargebacks which can be dealt with honestly, effectively and with minimal detriment to your business. But make no mistake. Its the fraudulent chargebacks that can put you out of business – and year on year credit card fraud only gets more expensive.

Did you know fraud causes $100,000,000,000 losses annually. Thats slightly less than the current GDP of Kuwait. In fact that number is larger than many countries GDP around the world.

So lets be clear, fraud is the no.1 reason for chargebacks. Fraudulent transactions account for approximately 60% of chargebacks while the rest is largely attributable to customers claiming fraud or friendly fraud. Were going to talk about Friendly Fraud in greater detail in a later Industry Insight.

BE AWARE: A high rate of chargebacks will cost you the merchant thousands of pounds per month in fees and penalties – and can even drive you out of business. And thats on top of the lost revenue and the shipping costs – and the product that has now probably disappeared.

How can I tell if I’m being targeted by fraudsters using Chargebacks?

There’s a number of litmus test indicators you can use – almost as a rule of thumb. But do be aware – these do NOT solve the problem – only highlight it (and should not be solely relied upon). Let’s focus on a few:

Your chargebacks exceed 50 basis points. There isn’t a one-size-fits-all rate. It depends on the type of business you’re in – and whether you ship goods digitally for example , or in boxes or you sell services etc. – and your appetite (and tolerance) for risk. If you’re seeing chargeback activity around 0.5% of all your transactions – you still have time to act swiftly to prevent passing the 1% mark – which is a key alarm bell for Visa & MasterCard. In depth and thorough real time reporting is required so you know at the earliest opportunity.

Your decline rate exceeds 1%. It’s been reported that online business in the US reject an average of 2.8% of all US transactions – although the actual fraud rate is around 1.1/1.2%. That’s a lot of good orders going to waste. Is that happening to you? Do you have security products in place to identify good & bad orders. Talk to us if you don’t. You could be simply pushing away profitable sales. JetPay’s GetReporting software can assist in identifying the good from the bad – all in up to the second real-time.

Manual review of orders on the increase. Many merchants resort to manual checks when chargebacks rise. This is time-consuming and expensive – and in some instances has a detrimental effect on sales. Nevertheless if you find yourself having to manually review more than 10% or 15% of all your orders or perhaps more – somethings is wrong. Fraud could well be the reason. You might want to consider our GetReporting software to help combat this costly manual intervention effectively.

Rising Refund rates of 2 or 3%+. If you sell goods digitally you may have been drawn in to reviewing all your completed transactions weekly – or even on a daily basis. And this may be because you’ve realised that refunding a customer’s ’suspicious transaction’ is cheaper than the fees and penalties imposed upon you from a chargeback. If the rate this happens – start investigating thoroughly – fraud may well be to blame. Our GetReporting software will help identify this too – and quickly.

Sharp rise in affiliate turnover?. Are you seeing a sharp rise in turnover and commissions – far greater than you’d expect? Too good to be true? It’s likely you have affiliates trying to mislead and cheat you into paying higher commissions through fraudulent CPC’s that mimick human behaviour. It’s a huge criminal business and one that frequently goes hand in hand with other fraud – like chargebacks.

Abandoned transactions aka Shopping Cart abandonment. If your site checkout mechanism is not optimised technically or just simply too slow – which means your customers wait too long – the more impatient ones might abandon the cart mid processing and go off and purchase elsewhere – even though the original transaction might still complete. And of course when they get their card statement – there will be two transactions showing – yours (which they believe they cancelled) and your competitors. Guess who get’s the chargeback? Again we have tools to combat this – with GetReporting and Dynamic Descriptors and more. Just ask us how.

Here’s some facts and figures you may know – all accessible on the web.
• Around 20% of merchants think its too costly to monitor fraud and the inevitable chargebacks.
47% of all US merchants believe fraud is inevitable (LexisNexis)
• Although up top 86% of chargebacks are fraudulent only 28% of merchants contest ALL chargebacks. ( + (Global Risk Technologies)
14% of merchants NEVER contest the chargebacks. (
• Chargebacks accounted for 41% of online fraud in 2011. (
• Online CNP transactions account for 60% of card fraud committed in Europe (Ingenico/European Central Bank 2/2014)
• a cardholder who has filed a chargeback is 9 times more likely to do it again.(
40% of consumers who file a fraudulent charge back will do it again within 60 days (GlobalRiskTechnlogies/Visa)

So what can JetPay Solutions offer you – the merchant to combat Chargebacks effectively?

Real-time Security Our advanced software analyses buying patterns. When it suspects a problem (its 99% accurate), it alerts you immediately, so you have time to decline payments before you lose money. With JetPay, fraud and risk protection is real-time. If we think theres a problem, we tell you immediately, so you can take action. Our advanced program analyses purchasing patterns and overall trends on your account. If it suspects a transaction of being fraud, or tumbling, it alerts you that instant, so you can accept the transaction or decline it before you lose money. How does that effect you? Its 99% accurate; no time wasting. [ more]

Card Identification cuts chargebacks because it spots problem cards (pre-paid payment cards, corporate cards and cards registered in high-risk areas) and blocks them before the transaction can go through (and then fail). Tailored specifically to you needs, our Card Identification Program can identify and block specific financial institutions or geographic areas that pose a particular risk of losses. It can also identify and block types of card most likely to cause losses, especially on recurring or continuity programs. [ more]

BIN blocking blocks cards from risky banks. BIN blocking uses Bank Identification Numbers to block cards from banks that are known to cause chargebacks because they are either from risky or high fraud areas or they tend to let disputes go straight through to chargeback rather than get customers to query them. BIN Blocking is unique to JetPay. [ more]

Dynamic Descriptors cut customer queries on statements. Dynamic Descriptors and Phone Numbers prevent chargebacks from unrecognised charges. Thats because they solve a common problem customers querying charges they dont recognise on their statement, especially on card-not-present transactions. [ more]

Real-time Reporting – If you need a snapshot of current transactions, deposits or refunds or fraud, funding and chargebacks you need it now, not tomorrow. Our GetReporting service gives you exactly that: a clear and customisable real-time picture of any users account, whenever you need it. Concerned youre nearing your chargeback limit? Find out immediately. Need a customised report to import to your General Ledger system? Well run a customised report, with all the fields you require for your General Ledger import, and send it to you daily even several times a day. Does one department need a partial refund breakdown? We can configure down to a specific user level. [ more]

And theres many more services we offer to combat chargebacks and fraudulent activity. Just start here to found out more or email us.

Look out for our next Industry Insight on Friendly Fraud coming soon.



By | 2017-01-25T11:17:55+00:00 November 23rd, 2015|Industry Insights|0 Comments

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