Is Your Approach to Deterring Fraud Also Deterring Your Customers?
Which task provides more value to your business: managing chargebacks or maintaining customer loyalty? Unfortunately, many merchants sabotage one while trying to generate ROI with the other.
Customer Loyalty Threat #1: Representment
When faced with a chargeback, representment (the act of fighting chargebacks) is usually the best option merchants have at their disposal.
Merchants are encouraged to engage in representment in appropriate situations. For example, if customers engage in friendly fraud by filing illegitimate chargebacks, merchants should fight back. Requests for refunds in unwarranted or unauthorized situations shouldn’t be honored.
Fighting cases of friendly fraud has two benefits. First, the obvious perk is recovering revenue that the merchant never should have lost.
Second, representment sends a powerful message to issuing banks: banks must execute more due diligence during the chargeback process because illegitimate claims will be disputed. By earning a reputation as a fighter, merchants can reduce the likelihood of future friendly fraud chargebacks.
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Merchants can also dispute chargebacks that are the result of an error. For example, the merchant already offered a refund, but the customer also filed a chargeback (known as a double refund).
However, an overly aggressive representment strategy that lacks tactical insight can backfire. For example, merchants shouldn’t dispute cases of actual credit card fraud. If the criminal was able to slip through the merchant’s fraud detection barriers, the chargeback should simply be counted as a loss.
But how do merchants determine the cause of the chargeback and know which cases can be challenged? Does disputing a chargeback automatically mean the customer is lost for life?
A Balanced Solution
When left to their own devices, merchants often run the risk of alienating good customers with their overly aggressive chargeback representment. Fortunately, all it takes is a little professional guidance and merchants can move away from an ‘either-or’ situation to a ‘both-and.’
It is possible to dispute chargebacks without negatively impacting customer retention rates.
For example, Intelligent Source Detection™ is a unique tool that helps merchants distinguish between undisputable criminal fraud and illegitimate friendly fraud. This insider intelligence improves management efforts and allows for effective disputes in appropriate situations.
Tactical Chargeback Representment is another tool that is essential when it comes to balancing customer loyalty versus chargeback management.
Chargeback Management Requires a Delicate Balance
Afraid your fraud prevention is alienating loyal customers? We can help.
Did you know issuers can send a copy of chargeback representment documents to the cardholder? Words, phrases, notes, and comments that were intended as in-house conversations might not reflect too positively on the business. That’s why merchants need a tactical approach to chargeback disputes, one that won’t damage the merchant’s reputation with either the banks or customer.
Customer Loyalty Threat #2: Accidentally Withholding Information
It’s not uncommon for merchants to enforce terms of service when conducting business. In fact, asking customers to click “accept” on the terms of service page is more or less universal. However, merchants can’t blindly trust that their customers actually read the disclosure that they’ve just accepted.
Important information needs to be shared. Merchants can’t bury important information, then hold up the terms of service as evidence that the customer should have known better. Those who engage in these practices can't expect to see very many return customers.
A Balanced Solution
Honest communication with a transparent approach is key.
- Merchants must properly disclose important information, not simply bury it in the Terms of Service page.
- It is helpful to send an order confirmation and reiterate the important parts of the ToS in the email.
- Merchants should communicate important details the consumer may not have noticed or may have forgotten.
- Customers who participate in recurring payments should receive a notification before the charge is process. This gives the customer a chance to request a cancellation.
- Merchants must let customers know if there will be a change in price for recurring payments.
Most merchants are surprised when they tally the number of chargebacks that are caused by their own policy mistakes, errors, or oversight. In some cases, as many as 40% of chargebacks are caused by merchant error.
Usually, it is difficult for merchants to provide an objective review of their own business. That’s where Chargebacks911® can help.
Our comprehensive Merchant Compliance Review features:
- A 106-point inspection of the business’s policies and procedures to identify problem areas
- Creation of a targeted, actionable report based on our inspection analysis
- Consultation with our trained experts to reduce or eliminate instances of chargebacks stemming from merchant error
Customer Loyalty Threat #3: Detection Tools
Front-end fraud detection tools like 3D Secure and card security codes are important fraud-fighters. These tools are a great line of defense against many kinds of criminal fraud, which may eventually lead to a chargeback.
However, it’s important to remember that fraud barriers also increase friction, so merchants will need to be reasonable regarding the degree to which they employ those tools.
In today's society, instant gratification is in high demand. If a merchant's checkout process is too time consuming, the shopper with move to the path of least resistance with another seller. Even if fraud prevention efforts are enforced for the consumer's own protection, brand loyalty won't be enough to overcome the desire for quick and easy.
A Balanced Solution
Merchants should engage in A/B testing, determine if front-end tools are causing abandoned carts. Will back-end options be sufficient for fraud detection while simultaneously improving the customer experience?
If used in conjunction with manual reviews, fraud filters will have a less significant impact on customers. However, if fraud filters aren’t used properly, they can be just as damaging to the customer experience as front-end tools…
Customer Loyalty Threat #4: Ineffective Fraud Filters
Fraud filters are designed to identify the characteristics commonly associated with fraudulent or unauthorized transactions. These automated systems scan the transaction for elements known to be red flags for fraud, then reject the charge.
Unfortunately, because the systems are just basing their results on common characteristics and historical data, many of the charges they reject will be false positives. The LexisNexis® Risk Solutions 2015 True Cost of Fraud report estimates that 1 in 4 charges rejected by fraud filters were legitimate, meaning the merchant just canceled a perfectly good sale for no reason.
Not only does this negatively impact the merchant’s current opportunity for revenue, it also leaves a bad impression on the formally loyal customer and decrease the odds of a future sale.
A Balanced Solution
Manual reviews will cut down on the number of legitimate transactions that unnecessarily get canceled. The risk of false positives is lower if a human reviews the fraud filter’s results.
However, there are certain downsides of manual reviews.
- Manual reviews are time-consuming, demanding an average of five minutes for each (and up to 10 minutes for larger merchants).
- Most merchants simply do not have the skillset to manually review and judge each potentially fraudulent transaction.
The best strategy for reducing false positives and improving the customer experience is to partner with a fraud management company. Professional risk mitigation services, like Chargebacks911TM, have the knowledge and expertise to accurately gauge risk and generate ROI.
Fewer Chargebacks, More Loyal Customers
Ultimately, there is no fool-proof way to prevent chargebacks while simultaneously pleasing every customer. The best that merchants can hope to do is to strike a balance between providing the best service possible while also mitigating risk.
Chargebacks911TM can help create a balanced solution for merchants to reduce their risk of friendly fraud while also keeping customers happy.
You don’t need to increase your risk of chargebacks just to improve the customer experience. But scaring away customers with poorly-executed fraud prevention techniques is just as bad.
Let us help. Contact Chargebacks911TM today.