In order to protect consumers, major credit card companies including Visa, Discover, Mastercard and American Express use a system that allows their customers to contest charges on their card that they see as unauthorized. This process of disputing and reversing a charge is known as a chargeback. While credit card chargebacks are often legitimate, they can also be a tool for committing fraud. Read on to gain an understanding of some of the most common types of chargebacks. For extra protection against fraud, companies like Ethoca can help with chargeback fraud prevention for your business.
Upon checking his or her credit card statement, a cardholder may discover that his or her credit card data has been stolen and that someone has processed unauthorized charges on the card. In order to regain the lost funds, the cardholder will file a chargeback. While this situation is not ideal for the merchant faced with the chargeback, it is legitimate and does not constitute fraud on the part of the consumer.
In some cases, a consumer will file a chargeback because of a mistake on the part of the person or company selling a given product or service. If you set up a recurring charge on a customer’s credit card without that customer being aware of or consenting to the charge, it is likely that he or she will take action to get his or her money back. Other mistakes that vendors can make include failing to obtain proper authorization for a transaction and trying to override a transaction which has been declined.
Friendly fraud takes place when a consumer disputes a credit card charge without malicious intent. Even though the charge is valid, the person who purchased the product or service may not recognize the merchant’s name on his or her credit card statement, or the customer may have forgotten that he or she agreed to be charged on a regular basis. The brick-and-mortar equivalent of friendly fraud would be a customer in a store who unintentionally walks out with merchandise in his or her pocket. Although cases of friendly fraud are the results of honest mistakes, they are damaging to businesses that are affected.
Regardless of the reasons that they come about, credit card chargebacks are both time-consuming to handle and harmful to your bottom line. In order to avoid them, you should be up-front with your return and exchange policies and maintain complete records of correspondence with your consumers.