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Delivery Confirmation and Chargebacks

Delivery Confirmation

Can Delivery Confirmation Help Prevent or Dispute Chargebacks?

Can consistent use of delivery confirmation save merchants from chargebacks? Research shows that delivery confirmation can be an effective part of a multi-tiered chargeback prevention and representment strategy. So why aren't more merchants doing it? Is it really a good idea or not?

What is "Delivery Confirmation?”

There are multiple methods for ensuring that an order reached its destination, and there are pros and cons for each one.

All do the same basic job of letting the merchant know that an order was delivered; however, the right type of delivery confirmation also informs the merchant when, where, and how the delivery happened. This is very relevant from a chargeback perspective, but not every option available to the merchant will provide this information.

To receive the maximum benefit, it's important for merchants to understand each method, how they vary, and how they can affect chargeback management.

Delivery Confirmation

The most generic version of delivery confirmation is just that: confirmation of delivery. This value-added service ensures the merchandise was delivered successfully; it does not, however, guarantee that the package reached its intended recipient.

It also doesn’t prohibit the package from being re-routed, and in no way identifies whether the delivery address belongs to the actual cardholder. "Successful delivery" might simply mean the order was left outside somebody's door, where a thief could easily snatch it.

Having said that, advertising that merchandise will be shipped with delivery confirmation might help deter acts of friendly fraud. It can, in some situations, provide compelling evidence for representment

Delivery Tracking

It's standard for some sort of delivery tracking to be included when purchasing a shipping label from a major carrier. Essentially, if a package is scanned in at the post office or shipping locale, that number goes in the system and can be tracked by the recipient.

Again, merchants only receive assurance that packages were delivered successfully, with no explicit guarantee that the merchandise ended up in the cardholder's hands. But with the ability to follow the progress of the delivery, delivery tracking can help merchants identify potential problems before they become major liabilities.

Also, if customers are likewise able to track the package, they’ll know exactly where the item is and when it will arrive. This in itself could help reduce chargebacks, as many disputes are filed because the consumer simply didn’t have enough patience and assumed they’d been victimized by a fraudulent merchant.

The downside here is that a fraudster is every bit as capable of tracking the shipment, and in fact, might even use the information to retrieve a delivered package when the cardholder isn't home. All the same, delivery tracking still provides more credible evidence, which could help the merchant dispute a cardholder’s claim in the event a fraudulent chargeback representment is filed.

Signature Confirmation

There are also a variety of different confirmation options available to merchants where an actual signature—physical or electronic—is required for delivery. If delivery was attempted but not successful, intended recipients will be notified, and may have to go to a carrier location to retrieve the shipment. All major carriers offer some form of signature confirmation. Optional variations include Direct Signature Required (someone at the delivery address must sign) and Adult Signature Confirmation, where recipients must be over the age of 21.

The most notable benefit of using a signature confirmation is it provides the merchant with tangible proof against friendly fraud (if the cardholder actually signed for the delivery). It can work in the customer's favor, as well, if a signature is clearly not that of the cardholder.

Not only does it help with representment, friendly fraudsters might also think twice before filing a claim if they realize the merchant has damning evidence against them. Most carriers will keep the acceptance signature on file for at least a year.

Direct Delivery

United Parcel Service (UPS) also offers Direct Delivery Only, where packages cannot be re-directed or delivered to an alternate address without the sender’s permission, even by the delivery driver. This helps prevent criminals from re-routing packages and helps ensure the merchandise is delivered to the cardholder.

Direct Delivery Only packages do not require a signature, though, so unless the merchant wants to add that service, packages might still be left on a porch or in a letter box.

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It's easy to see why some merchants get confused about the benefits of delivery confirmation. The waters get even murkier when the potential for chargebacks gets added to the mix.

How Merchandise Delivery Can Affect Chargebacks

The transportation of merchandise can create or exacerbate chargeback situations. How the merchant chooses to acknowledge delivery can have a serious impact on future representments.

Cardholders can file a chargeback if the merchandise is damaged during delivery. Cardholders can also dispute a transaction if they returned merchandise but the merchant didn’t provide a refund. While these could be legitimate cause for claims, in both instances the merchant should be contacted first, and given the opportunity to respond to the situation. By and large, delivery confirmation would not prevent these types of chargebacks, nor provide evidence to fight them.

There are other chargeback scenarios, including a few where delivery confirmation could potentially help prove a merchant’s case. For example, a friendly fraudster could dispute a transaction, claiming it was unauthorized. Delivery confirmation with the cardholder’s signature could help establish that the order was accepted, and thus authorized. But these types of situations are comparatively rare.

In fact, there is only one type of chargeback that is both common and potentially impacted by the merchant's use of delivery confirmation: Merchandise Not Received.

Title Visa Mastercard
Merchandise not received
Merchandise was not received or not received by the agreed upon delivery date.
30 4855

Causes

  • The merchant failed to send the products.
  • The merchant billed the cardholder before sending the products.
  • The merchant didn’t send the items by the agreed upon delivery date.
  • The merchant didn’t make products available for pickup.
  • The consumer engaged in friendly fraud.

Again, any one of the circumstances listed here could be cause for a legitimate chargeback. That’s why friendly fraudsters love to abuse them; not only do the reasons sound legitimate, they're extremely hard to disprove.

When disputing a chargeback claim, the burden of proof is on the merchant. That might seem unfair given that the cardholder is the one making the accusation, but that's not how the banks see it. By the time the chargeback is actually filed and the money taken from the merchant, the bank has already thoroughly investigated the claim and agreed with the cardholder.

At least, that's what happens in theory; in practice, the issuers often don't have the resources to completely vet every claim. That's why it's important for merchants to arm themselves with evidence that might disprove a claim, before the claim is filed. Delivery confirmation can help do that.

Delivery Confirmation for Digital Goods

"Merchandise not delivered" or "services not provided" chargebacks are far more common for merchants who sell digital goods. Since these merchants aren’t using a carrier service, proof of delivery is quite different.

Here, the subjectivity of issuers’ interpretations of network regulations often leads to frustration. For example, Visa’s representment requirements for reason code 30 is:


Documentation to prove that the Cardholder or an authorized person received the merchandise or services at the agreed location or by the agreed date.

This vague requirement is both helpful and hurtful. For example, since nothing is spelled out, merchants have options when accumulating delivery confirmation proof:

  • Put an activation key in the cloud. If the consumer accesses the key, delivery was successful.
  • Inform customers that the product has a built-in kill switch. If a chargeback is filed, the service or access to the product will be terminated.
  • Use an electronic signature page to indicate the customer has read and agrees to the policies.
  • Send a code via text message to verify the account information.
  • Maintain accurate records regarding IP addresses and other personal information.

Any of these could be considered evidence as to acceptance of delivery … but again, Visa's description is so vague that whether or not that evidence will be considered compelling enough is subject to interpretation.

Limitations of Delivery Confirmation in Chargeback Management

In many cases, delivery confirmation can help keep chargeback rates in check and recover lost revenue. But no tool currently available is 100% successful at preventing or disputing chargebacks, and there are many situations where the protection mechanism can break down.

  • Carrier personnel make mistakes. They might not follow the delivery instructions or make certain allowances.
  • Even if delivery confirmation standards were followed to a T, criminals can forge cardholders’ signatures or pick up boxes left in public places. Friendly fraudsters can deny the authority of a family member to make a purchase, even if it was successfully delivered to the person who placed the order.
  • The chargeback representment process is, as we've said, subjective. A Case Manager at one bank might consider a delivery confirmation receipt sufficient evident to validate the original transaction … but a Case Manager at another bank might not. Opinions can vary even within a single issuing bank’s chargeback department.

It's also essential to remember that while delivery confirmation can play an influential role in preventing and disputing this one reason code … it is just one reason code: there are many other reason codes that merchants need to worry about.

Creating Friction with Customers

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Despite the potential benefits, some merchants are skeptical of using delivery confirmation.

They fear their customers will find it off-putting and a hassle. For example, let’s say a customer is expecting to find a package on the doorstep after work, and instead finds a receipt stating the cardholder must be home to accept delivery. The resulting frustration might be enough to trigger a cancelation or even a chargeback.

Ultimately, it comes down to one question: is it better to mitigate loss associated with chargebacks or encourage loyal, happy customers who are eager to shop with the business again and again? Merchants can’t always have both; they must calculate what is in the best interest of their own future business growth.

Thinking About the Big Picture

Delivery confirmation can help prevent and dispute chargebacks. It is especially helpful for big-ticket purchases and/or items delivered digitally. However, chargeback management implemented piecemeal can't be expected to be effective. Merchants must analyze their overall goals and objectives and create a long-term strategy for reducing chargebacks and recovering lost funds.

The experts at Chargebacks911® would be happy to help you create a custom comprehensive chargeback management solution. Contact us today to get the ball rolling with a free chargeback analysis.


Prevent Chargebacks.

Fight Fraud.

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2718    Chargeback Prevention    

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