Chargeback Risk Factors

May 26, 2022 | 22 min read

Chargeback Risk Factors

The Top 30 Chargeback Risk Factors Facing Merchants & How to Eliminate Them

What causes chargebacks? Why do disputes end up costing you precious time and revenue?

Every merchant wants the answer to those questions.

The truth is that it isn’t just one factor responsible; in fact, there are many things that contribute to your chargeback risk. So, how do you identify chargeback risk factors? Even more importantly, how do you respond to them? Well, that’s what we’re here for.

In this article, we’re looking at the top 30 reasons why customers file chargebacks. For each of these risk factors, we’ll look at why your business may be susceptible, and how you can minimize your chargeback risk and prevent these disputes from happening.

Why Do Customers File Chargebacks?

First, let’s start by establishing why chargebacks happen in the first place. You need to understand that there are three fundamental reasons why  customers file chargebacks:

HackerCriminal FraudDispute resulting from the actions of a criminal actor.
Chargeback Risk FactorsFriendly FraudDispute caused by accidental or deliberate chargeback abuse.
Chargeback Risk FactorsMerchant ErrorDispute resulting from mistakes or missteps on your part.

Each chargeback source has many potential triggers. There is no single solution that works for all criminal fraud threats, for example. No “secret trick” is going to prevent all merchant error chargebacks. But, if that’s the case, how do you start minimizing your chargeback risk and fighting back against fraudulent or erroneous disputes?

The answer is simple. First, you identify the common practices and oversights that cause them. Then, you deploy solutions and best practices to eliminate those threats.

The Top 30 Dispute Triggers & Chargeback Risk Factors

These are the 30 most-common chargeback risk factors facing merchants. Study them closely, and ask yourself: “how many of these am I vulnerable to?”

We’ll provide some info about each risk factor, then offer tips on how to quickly minimize your risk.

#1 | Confusing Policies

If customers don’t understand your policies, they won’t be able to abide by them. Rather than returning an item through the proper channel, for example, the customer may get frustrated and file a chargeback.

Reduce Your Risk:

No one wants to be surprised by policies after a transaction has already been made. Take care to thoroughly explain shipping and fulfillment practices, your return policies, and any other factors that may impact a purchase in advance. This is the best way to avoid alienating shoppers.

#2 | Unclear Contact Information

There are no “business hours” in eCommerce. Participating in a global, always-on market means you could be dealing with buyers at any hour of the day. If you cannot provide round-the-clock service, then you could end up with buyers frustrated that you didn’t respond in a timely manner.

Reduce Your Risk:

Make sure your contact information is visible on every page of your site. This includes your customer service phone number, email address, links to your social media profiles, and your mailing address. It’s also smart to send a follow-up email after each purchase to provide another opportunity for consumers to connect with you.

If you cannot provide round-the-clock live service, then list your service hours and stick to them diligently. Provide buyers with an immediate autoreply, letting them know when you will get back to them.

#3 | Slow Customer Response

42% of customers expect a response to any inquiry within an hour. You can’t afford to waste time when customers reach out for help. If you don’t respond quickly enough, they’ll simply contact the bank instead.

Reduce Your Risk:

Answer all inbound inquiries in a timely manner, without hesitation. We also recommend you answer all phone calls within three rings; the likelihood that a customer will hang up increases significantly after the third ring. You need the infrastructure, staff, and resources to respond promptly. If you can’t provide this in-house, consider working with a third-party service provider.

#4 | Not Tracking Deliveries

Delivery tracking lets customers keep tabs on their purchases. Without this information, buyers will be in the dark about the status of their orders through the fulfillment and shipping process. If shipment takes longer than expected, the buyer might panic and file a chargeback.

Reduce Your Risk:

Using tracking and delivery confirmation benefits you and your customers in multiple ways. First, order tracking reassures customers that their purchases are en route, making the buyer less likely to file a dispute. Then, if a transaction turns into a dispute anyway, delivery confirmation can be a handy piece of evidence to build your representment case.

Make sure every product you send out is properly tracked and all deliveries are recorded in the same file. The ease of access to this information can save you and your customers time and money.

#5 | Missing Signatures

Let’s say a bad-faith actor wants to commit a cyber shoplifting attack. They can simply purchase a high-ticket item, then later request a chargeback, claiming the item never arrived. If you don’t have a signature from the buyer at the time of delivery, then you might not be able to refute that claim.

Reduce Your Risk:

You don’t necessarily need customers to sign for every single delivery. However, it’s a good idea to request signature confirmation for the delivery of expensive, high-ticket items. This serves as insurance to help prove that you kept your side of the deal by shipping the item and that the customer received it.

When in doubt, get it signed. This is especially applicable if the recipient lives in a difficult to map location or the items being sent out are expensive. The point is, if a signature could help, it likely will.

#6 | Lack of Live Service

We already mentioned that a slow response could increase your chargeback risk. Well, no response is even worse. Chatbots can be very helpful, but customers will get frustrated if they have a complex question which can’t be handled by a chatbot. They may need a live person to step in and help.

Reduce Your Risk:

A chatbot service can be beneficial for interaction with customers. However, you still need to have humans available to take over at the right time and address any more complex matters.

One option is to invest in AI-driven virtual assistants or set up automated responses. This lets you—and your customers—avoid the headaches associated with late or absent responses. Maybe you can’t be online 24 hours a day to field complaints and take calls. However, a good virtual assistant can.

#7 | Vague Product Descriptions

Online customers can’t get the “touch and feel” effect they would in a brick-and-mortar store. Therefore, product descriptions will have to suffice. If your products are not laid out in detail, two things can happen: shoppers will not buy, or disappointed customers will file chargebacks.

Reduce Your Risk:

You need to provide clear, detailed product descriptions. These should spell out each item by color, size, weight, function, capability, battery life…anything you can think of to give your customers a realistic expectation of what will arrive.

#8 | Not Verifying Customers

Some merchants avoid antifraud tools like geolocation or 3-D Secure, fearing that they’ll create too much friction. As a result, they end up accepting unauthorized purchases, which inevitably turn into chargebacks.

Reduce Your Risk:

Antifraud tools are at your disposal for a reason—take advantage of them! If you don't verify buyers thoroughly, you could end up accepting fraudulent transactions that could lead to lost revenue, higher fees, and even chargebacks.

The key is dynamic friction; this approach lets you weed out fraud with little- to no impact on legitimate buyers. Remember: you want to provide buyers with as seamless and hassle-free an experience as possible. But, if you don’t verify your customers well enough, you’re placing your business at risk.

#9 | Skipping AVS

Fraudsters will often have incomplete cardholder information. The criminal may know the card number, the expiration date, even the CVV. However, they will rarely have details like the cardholder’s billing address.

These transactions should be easy to flag. If you’re not using AVS, though, you might not pick up on these address mismatches.

Reduce Your Risk:

AVS, or Address Verification Service, lets you compare the information submitted at checkout against the cardholder’s information on file with the issuing bank. This way, you can spot mismatches and flag them as potential fraud.

#10 | Lacking Photos

Having just one—or even worse, zero—photos of the goods you’re selling will create problems. Buyers can’t really see what they’re buying beforehand. As a result, they may not be able to see details that would otherwise have made them think twice before purchasing. If that happens, the buyer might turn to a chargeback to undo the purchase.

Reduce Your Risk:

Eliminate this chargeback risk factor by providing high-resolution, close-up images that show the item from various angles. Each listing should include at least 5-10 high-quality images that detail the item. Images should be set back a bit, too, thereby giving buyers a sense of scale.

If additional colors or other differentiating factors could affect the sale, include images to highlight these as well. Your customer can’t ‘guess’ what they would like, without evidence.

When it comes to chargebacks, the biggest mistake is doing nothing.

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#11 | Weak Password Standards

Fraud is a serious problem, as all merchants can certainly attest. Lax security methods and unsecured sites can lead to any number of unpleasant breaches.

Security is like a chain; if there’s one weak link, then the entire structure is vulnerable. If a hacker can breach a user’s account, they can leverage that into other attacks, so it becomes a recurring problem.

Reduce Your Risk:

Eliminate this chargeback risk factor by providing high-resolution, close-up images that show the item from various angles. Each listing should include at least 5-10 high-quality images that detail the item. Images should be set back a bit, too, thereby giving buyers a sense of scale.

When a customer creates an account on your site, you should require them to make a complex password using a combination of cases, numbers, and symbols. Otherwise, a criminal could easily guess their password using partial account information like an email address and use it to commit account takeover fraud.

Remember: improving your password requirements will protect both you and your customer.

#12 | Misleading Billing Descriptors

Your customers won’t necessarily see your name when looking at their bank statements. Default descriptors often include information like addresses or alternate names, which can confuse eCommerce shoppers. They might be unable to recognize a transaction and assume it’s fraudulent.

Reduce Your Risk:

Check out how your billing descriptor appears with each card scheme, and customize it to reflect your business. Otherwise, customers might not recognize your charge and suspect fraud.

#13 | Not Validating Digital Goods

A customer may file a chargeback, claiming to have never received a digital item like a music download or an eBook. How can you verify that’s the case, though? If customers have unlimited, unchecked access, they might make digital purchases, download the goods, then claim it was never received.

Reduce Your Risk:

Store the download in the cloud and attach a unique product key to each purchase. You can then send the key to the customer via email. That way, you can verify the product key if the customer accesses the download. This creates a digital paper trail, showing that the buyer did access the goods.

#14 | Not Verifying Your Terms

Your ToS (terms of service) is like a contract between you and your customer. If your customers don’t read them, though, they will not know what to expect from your business.

Reduce Your Risk:

You should ask all your customers at checkout to verify that they’ve read the ToS and agree to them as a condition of completing the transaction.

#15 | Downplaying Disclaimers

As a merchant, the absolute last thing you want to do is conceal information. Even if it’s a simple matter of omission, rather than outright lying, your buyer can file a chargeback if they feel that you haven’t been 100% truthful with them.

Reduce Your Risk:

A disclaimer aims to get your customer’s attention and highlight an exception to what would otherwise be assumed. You should never hide disclaimers. Otherwise, you’re asking to be misunderstood.

Disclaimers should be loud and clearly visible near the top of any relevant page on your site. It may also be a good idea to remind customers of any disclaimers before checkout.

#16 | Outdated Plugins

Web browsers and pieces of software are updated constantly. If you’re not keeping tabs on updates and new plugins, you could be vulnerable to fraud attacks that leverage vulnerabilities in outdated software.

Reduce Your Risk:

Keep on top of all plugin updates, and implement them as soon as possible. Ideally, you’d have an IT specialist on staff who would be responsible for keeping all systems up-to-date and secure.

#17 | Misallocating Staff & Resources

Don’t you hate wasting time and money? Plenty of merchants throw resources in the trash every day by allocating staff ineffectively without assessing their chargeback risk factors. They devote countless hours to tasks that could be handled in a much more efficient manner, in the process diverting resources away from other revenue-protecting practices.

Reduce Your Risk:

Each business has different needs regarding organizing and allocating staff. That said, you can reach out to one of our chargeback experts to get help finding the most effective way to distribute your hard-earned cash.

#18 | Not Adopting 2FA Solutions

Conventional payments let you verify buyers using one security factor. For instance, the buyer must enter cardholder information at checkout. That doesn’t prove the buyer is who they claim to be; only that the buyer has the required information.

If you could implement two-factor authentication, like requesting a biometric verification at checkout, this would be a much more secure solution.

Reduce Your Risk:

Mobile payment tools like Apple Pay and Google Pay arey convenient checkout methods that offer the same tokenization technology as EMV chip cards. They also provide two-factor authentication.

The program asks your customer to first unlock the mobile device, then provide a biometric scan to authorize a sale. This could be a thumbprint, a facial scan, etc. This provides a level of security that fraudsters will be hard-pressed to defeat.

Knowing what your customers want is retail 101. New customer preferences, eCommerce tools, and policy changes come out constantly. If you’re not current, you open the potential for errors and deliberate fraud.

Reduce Your Risk:

Keep tabs on all relevant industry news, and consider it carefully. You have to exercise critical thinking, and be aware of how any new developments will impact your business and your bottom line.

#20 | Negative Option Billing

Chargebacks are a common side-effect of the negative-option billing model. Merchants who use this method tend to rely on fine print to turn profits, which consumers can interpret as a shady business practice. Furthermore, if cardholders didn't understand what they were signing up for or wanted to cancel but didn't know how, they may file chargebacks to recover their funds.
The public tends to have a low opinion of the negative-option approach, in general. As a result, negative-option billing is considered a “high-risk” practice.

Reduce Your Risk:

Your best defense against negative-option billing disputes is to ensure you are fully compliant with Visa and Mastercard’s most current billing rules. You also need to watch your back when it comes to daily practices.

This means being up-front with your billing policies (no “fine-print surprises”) and making your billing methods as transparent and easy for customers as possible. This is especially true when it comes to cancellations or account changes. Getting every detail of your agreement in writing is crucial.

#21 | Free Trials

Many merchants understand the benefits of “free trial” advertising and promotions, but they can be problematic when used incorrectly. Much like negative option billing, free trials often trigger disputes and chargebacks because customers tend to forget they have signed up for a service, change their minds frequently, or were confused about billing methods.

Reduce Your Risk:

Supply your customers with up-to-date notifications and reminders that their trial is going to expire beforehand. Additionally, if you provide cancellation options in each email or text message, this makes it very easy for the customer to cancel before they are charged. Incidentally, it also provides you with key evidence in your favor should a dispute be lodged against you anyway.

#22 | Subscription Billing

As the name implies, subscription billing is based on a contract between a merchant and a subscriber. The contract states that goods or services will be paid for by the customer, and delivered by the merchant, all according to an ongoing schedule.

On the other hand, subscription billing comes with a full list of potential problems. For instance, subscription billing will automatically designate your business as a high-risk account, which tends to incur higher fees and penalties than traditional models. This happens because subscription billing models are typically at risk for disputes and chargebacks for the same reasons as recurring billing and free trials.

Reduce Your Risk:

The most important factor here is to consistently remind your customers that they have agreed to pay you for your services. You should make your policies crystal clear and easy for them to navigate.
Another tactic that works well with subscriptions is to send your customers periodic emails to ensure that they are getting everything they require from your service. This enables the customer to suggest changes they would like to see implemented, and serves to remind them that they are still registered with your service.

#23 | Affiliate Marketing

Affiliates gain commissions, advertisers sell more products, and consumers get the goods they want. Nobody would complain if affiliate marketing always worked this way in real life. Unfortunately, there are a few loopholes in the system that fraudsters can exploit.

There are a lot of scammers who try and take advantage of advertisers to claim unearned commissions. Advertisers are then on the hook for bad traffic or fraudulent transactions they didn’t source. The problem is pervasive enough that affiliate fraud has become an entire subset of criminal fraud.

Reduce Your Risk:

Creating a balance between your marketing goals and your fraud prevention efforts should be priority #1 when working with affiliates.

Be extremely firm and communicative about the terms and conditions of your affiliate program. Never pass up an opportunity to manually review incoming data and analytics. It’s not possible to be everywhere at once and observe every detail of your marketing plans 24/7. But, when dealing with affiliates, it’s a great idea to make it routine.

#24 | High-Dollar Items

This one might be less obvious. Naturally, you might assume that the higher the ticket price for goods and services, the better. Right? Well, not necessarily.

If you sell extremely expensive goods, odds are you are already considered a high-risk merchant by banks and processors. The reason for this is that expensive goods cost more money to make, fulfill, and deliver. And, if those items are lost in the mail, damaged, stolen, or otherwise not received by the customer as expected, disputes and chargebacks could get pricey very quickly.

Reduce Your Risk:

There isn’t much you can do about high item costs that could affect your chargeback risk, aside from really digging into your best practices and communicating your process and terms very, very clearly. It’s hardly foolproof…but it’s still your best bet.

#25 | BNPL (“Buy Now, Pay Later”)

When BNPL works properly, it’s a win-win for everyone. As a merchant, you expand your market to include those consumers unable to pay full price upfront. Customers, on the other hand, get a convenient way to pay for their purchases over time.

The trouble starts when the customer regrets making the purchase or forgets that they’ve agreed to make the purchase at all. Or, if a fraudster manages to manipulate the process to engage in BNPL fraud.

Reduce Your Risk:

It might feel like we’re hammering this point a lot, but it’s worth restating: be up front about your policies. You want to send payment reminders and notifications, and always follow up with your customers to ensure they are happy with the arrangement.

#26 | BOPUS

Customers have grown accustomed to alternative shopping methods, like the “buy online, pick up in-store” (BOPUS) model. They make life easier and more convenient. Having said that, alternative payment and procurement options can be a juicy target for disputes and chargebacks.

Reduce Your Risk:

Make sure your customers know when, where, and how to pick up their items by supplying them with thorough details. If your business is app-enabled, encourage your customers to turn notifications on until they have picked up their items.

Lastly, and perhaps most importantly, make sure you verify your customers before and during pickup or payment finalization. If the customer is confused by anything during the BNPL process, this hints at an obvious area for improvement.

#27 | Card-Not-Present Sales

This is a big one. Just the act of conducting CNP transactions—i.e. eCommerce—will necessarily raise your risk level. Although there are a plethora of ways to verify customers before and during the checkout process, when someone isn’t standing in front of you, things can always go wrong.

Criminal and friendly fraud are just two side effects of taking contactless payments, and both can lead to penalties and higher fees. There are other risks as well; for example, buyer’s remorse is one of the leading causes of chargebacks in card-not-present eCommerce. It also causes a significant amount of return fraud.

Reduce Your Risk:

There is no surefire method to prevent pre-and-post transactional fraud in the CNP space, nor is there a “miracle cure” for merchant error. Therefore, the best you can do is to refine your fraud prevention efforts and weed out what isn’t working for you.

To illustrate this, a comprehensive fraud prevention strategy is your number one defense against fraud when used in combination with an effective chargeback management strategy.

#28 | Ignoring Friendly Fraud

Unlike criminal fraud, friendly fraud isn’t easy to spot and respond to. This is actually a post-transactional type of fraud that is difficult to identify and diagnose. It gets even more complicated when you consider that it isn't performed by a hardened cybercriminal either. Friendly fraud is often committed by a loyal customer who had no idea what they were doing.

Friendly fraud is a serious concern, but citing chargeback fatigue or lack of staff as two main concerns, an alarming number of merchants respond to friendly fraud chargebacks by doing nothing at all. Shy of the costly and time-consuming representment process, your options are limited in terms of friendly fraud prevention.

Reduce Your Risk:

Ignoring friendly fraud is simply not an option for merchants who wish to remain in business nowadays. You need a plan and you need one now. As mentioned above, combining a comprehensive fraud prevention strategy with effective chargeback management can make a large dent in your overall chargeback volume. This will help keep your chargeback rate low.

Aside from these, there are actually several ways to reduce your friendly fraud. You can optimize your customer service practices, opt for dynamic billing descriptors, analyze chargeback data, and review and improve your dispute responses.



#29 | Losing Track of Case Resolutions

You may be surprised that more than 1 in 4 merchants who dispute their own chargebacks do not bother tracking their win rate. If you don’t keep track of your past performance, you can’t determine what works. You can’t pinpoint areas in which you need to improve.

Reduce Your Risk:

Tracking your chargeback win rate is essential; it allows you to examine and refine your dispute process and strategies, identifying what works…and what doesn’t. By looking at your success rate with chargeback disputes, you can figure out if your strategy needs a few minor tweaks or a total overhaul.

#30 | Not Asking for Help

You put a lot into your business. Make sure that energy and passion isn’t wasted trying to avoid the stickier details, like fraud, friendly fraud, and merchant error. Working with industry experts can help you craft strategies and systems that address each of these concerns while remaining true to your brand. In order to get the most out of these solutions, the first step is to recognize that expert guidance exists for a reason.

Reduce Your Risk:

Shop around for fraud prevention and chargeback management specialists that are certified in the payments industry. Be sure to exclude companies that do not offer both features, or lack the appropriate chargeback certifications to guide your business wisely.

The Biggest Mistake of All: Doing Nothing.

All the above mistakes can lead to more chargebacks. There’s no bigger mistake you can make than to see these errors and do nothing, though.

Chargebacks cost merchants roughly $31 billion in direct fees, liabilities, and lost revenue in 2017. Of course, the problem balloons when you factor in all the money lost to false declines, sustainability issues, return fraud, and other related problems. You can’t afford to let these simple errors keep causing chargebacks…no one can.

Click below and learn how you can take a stance. Eliminate chargeback risk factors and start protecting your business today.

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