Top Chargeback Prevention Tools: How (and Why) They Work
Chargeback prevention tools come in many different levels of complexity and effectiveness. Some are good for overall chargeback reduction, while others are aimed at identifying specific types of fraud. Implementing a single chargeback prevention tool, however, typically only produces a marginal decrease in the number of issuances.
This is because the chargeback process is subjective. Cases involve—and often rely on—human interpretation. Despite the hype they sometimes receive, fully-automated solutions are not effective when used in isolation. Computers can’t wholly compensate for a problem created by people.
That said, there are several tried and true tactics that have been proven to help in detecting fraud and validating cardholders. These tools work by implementing multiple layers of risk mitigation that can be appropriately applied to all transactions. Taking advantage of these tools and tactics can go a long way toward helping you reduce risk and retain more revenue.
How Do Chargeback Prevention Tools Work?
The dynamic nature of fraud makes preventing chargebacks a complex task. A static, one-size-fits-all approach simply won’t be effective. Fraudsters are tech-savvy, and constantly working to refine their techniques. Therefore, risk mitigation strategies must be able to adapt and evolve as technologies and strategies change.
As we implied earlier, different tools fight different types of fraud in different ways. That’s why your first step should be determining the actual source of the chargebacks you’re trying to prevent.
That may sound simple, but merchants often find themselves dealing with inaccurate chargeback data. This causes them to employ the wrong tools in response. It’s like trying to drive a nail with a power saw; it doesn’t work, and can easily create more problems than it solves.
With that in mind, before we delve into some of the more common fraud prevention tools, let’s take a look at a solution that is often the cornerstone of the most effective chargeback management strategies:
Intelligent Source Detection™
Friendly fraud rendered chargeback reason code intelligence useless. A consumer filing a chargeback is motivated to use whatever rationale best suits their purpose, and banks attach whatever reason code fits, regardless of whether that code actually explains the transaction dispute.
Reason codes associated with criminal fraud, for example, are attached to half of all transaction disputes. That’s despite the fact that 60-80% of chargebacks are actually cases of friendly fraud. Without the ability to identify the real true sources of chargebacks, you end up implementing increasingly-ineffective strategies.
Intelligent Source Detection is a patent-pending, proprietary technology designed specifically to pinpoint the true cause of chargebacks. This ability to custom design more effective strategies for your situation makes ISD™ one of the most powerful and useful chargeback prevention tools available. Click here to learn more about incorporating this technology into your chargeback management strategy.
Chargebacks Are Preventable … If You Have the Right Tools.
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The Top 8 Best Chargeback Prevention Tools
We’ve taken the liberty of pulling together 10 of the best tools and technologies available for reducing your chargeback risk:
Address Verification Service (AVS) helps reduce risk by automatically checking the billing address listed in the transaction against the address registered with the issuing bank. If they are not a match, AVS flags the transaction as possible fraud.
Criminals often lack access to the cardholder’s billing address or other sensitive information. Address verification helps prove the cardholder is the actual person participating in the transaction. Always request shoppers to provide both their billing and shipping addresses when purchasing, then wait for the results of the AVS check before processing the transaction.
Card Security Codes
Card security codes are another authentication tool that helps ensure the shopper has physical possession of the card being used. These codes cannot legally be stored by either the merchant or the processor; the cardholder must reenter the digits with every purchase.
Always require customers to enter the card security code during the checkout process. Since the information is only available on the card, this greatly increases the odds that the customer is, at least, in physical possession of the card.
3-D Secure 2.0
Implementing 3-D Secure 2.0 (or 3DS2) provides yet another level of fraud authentication by asking customers to enter a predetermined security code. It works like an online PIN code; fraudsters have no way of knowing the security code, and the tool stops the transaction without the valid code.
Your processor can help get you started or upgrade you to 3D Secure 2.0. Each card network has its own branded 3DS2 product:
Both blacklists and whitelists help reduce risk by identifying and preventing transactions that are likely to result in chargebacks.
A blacklist helps ban known or probable fraudsters. Whether these individuals are engaging in criminal or friendly fraud, establishing a blacklist can ensure they only cause trouble once. The blacklist can block orders by something specific, like an individual IP address, or by something generic, like the purchaser's country of origin.
Like a blacklist, a whitelist helps control customer demographics, only from a different angle. Rather than ban a few bad actors, the process starts by blocking everyone except for select pre-approved users. For example, the list could be limited to US or Canadian customers only, and the whitelist would reject all other buyers.
Visa Account Updater (VAU)
Visa Account Updater is a credit card information clearinghouse that helps prevent chargebacks associated with incorrect card data.
Simply put, VAU notifies you of updates whenever a cardholder’s account information changes. This helps manage recurring transactions and ensures you have the most up-to-date account information to process transactions.
Velocity limits, or velocity checks, scan for potential fraud based on the rate at which a buyer submits multiple transactions.
They let you flag repeated submissions of the same information in a designated time period. This allows you to segment out suspicious transactions, identifying cases in which a fraudster might be engaged in card testing, or trying to run multiple transactions with a valid card number.
Alerts help you avoid chargebacks based on unauthorized transactions. When fraud victims contact the bank to dispute a transaction, the bank alerts you to the situation. This gives you the opportunity to provide an immediate refund. While refunds may not be ideal, when it comes to the question of chargeback vs. refund...there's really no contest.
Enriched Alerts from Chargebacks911 offer the widest chargeback alert coverage available. Our service draws from our own exclusive network, as well as those of other third-party providers including Ethoca and Verifi for the most comprehensive coverage available.
Network Automated Response Programs
Sometimes, chargebacks can be initiated unintentionally. For example, a cardholder who doesn't recognize a transaction on their account may call the issuing bank to report it. The customer often needs just a bit of additional information to recall the transaction; that’s a problem, though, if the bank can’t provide that data.
Visa and Mastercard have their own automated response programs that can help clear up customer confusion and invalidate provable cases of chargeback fraud:
- Order Insight: Visa Order Insight (previously known as the Visa Merchant Purchase Inquiry, or VMPI) is a plugin for the Visa Resolve Online platform. It provides automated, real-time merchant transaction data between issuers and participating merchants.
- Eliminator: Mastercard’s Eliminator provides for Mastercard much the same service as Order Insight does for Visa. By connecting bank agents with merchant purchase information, inquiries can often be resolved without resorting to chargebacks.
Both Order Insight and Eliminator are powerful chargeback prevention tools. Using either (or both) requires enrollment and installation, though. The integration process can be challenging, but the experts at Chargebacks911 can help you decide which programs will benefit you the most, then partner with you to facilitate implementation and operation.
Preventing Chargebacks and Retaining Revenue
Preventing transaction disputes is a complicated task. Your best bet is to consider proven-effective chargeback prevention tools, while keeping in mind that at the end of the day, even the best among them are just that: tools. For maximum benefit, they still require knowledgeable and experienced people to wield them.
Few merchants have the necessary resources available to consistently prevent chargebacks. There are simply too many variables that can change on a day-to-day basis. Your time, effort, and energy are much better spent growing your business for the future, rather than addressing chargeback issues of the past.
That’s where we come in. Our turnkey, end-to-end solutions can take chargebacks off your plate, with a guaranteed ROI.
Prevent chargebacks. Recover revenue. Contact us today to learn more.