Showing posts with label Chargeback Management. Show all posts
Showing posts with label Chargeback Management. Show all posts

Thursday, June 17, 2021

Why Merchants are Using Chargeback Management Outsourcing Solutions to Effectively Avoid Chargeback Fraud

Chargebacks have massively negative impacts on the businesses of online merchants. Chargeback fraud affects their business reputation, threatens their relationship with banks (ability to accept payments from credit cards), and costs them a lot of unnecessary chargeback fees. There are three main types of chargeback fraud –

  • Card Not Present Fraud - Transactions where actual credit cards are not swiped, inserted, or tapped at terminals.
  • “Friendly” Fraud - Consumers make purchases only to dispute the charges later.
  • Account Takeover Fraud - Cybercriminals steal/hack consumers’ payment information to use them to make fraudulent purchases and chargeback attempts.

Merchants don’t just lose the item they sell to these fraudsters or the money they refund – the exasperating truth is that each fraudulent chargeback attempt costs online businesses a lot more in hidden fees. 

Merchants who fall victim to chargeback frauds also have to deal with -
  • Extra transaction fees (typically 4-5% of the transaction amount)
  • Unnecessary operational costs to deliver the products to the fraudster; costs like packing, shipping, delivery, etc., make up 15-20% of a merchant’s revenue. All these costs are unnecessarily lost because of chargeback frauds.
  • Marketing and lead generation expenses go to waste every time a sale results in a chargeback.
Chargeback fraud costs online businesses way more than they’re aware of. Add indirect costs like customers leaving negative reviews or customers deciding not to do business with your online store because of the security risks to the mix, and you have a huge problem.

These problems only seem to keep growing. One report claims chargeback fraud attempts increase by 20% every year, costing online merchants billions in lost revenues. 

Why are chargeback frauds on the rise? Some factors that contributed to this unprecedented growth in chargeback fraud include -
  • Technological Sophistication - Since technologies have advanced, customers have found more innovative ways to defraud online merchants. Merchants may look back at previous attacks and prepare their online platforms for those types of attacks. But, identifying new types of friendly fraud chargebacks or account takeover attempts is very difficult for them.
  • Online Banking – Online banking has made it easier for customers to file chargebacks as their phones have easy-to-access mobile banking apps. Technically, just by pressing a few buttons, fraudsters can make false claims and repeatedly commit chargeback frauds against various merchants. Unprepared merchants who can’t come up with evidence to disprove such claims made by fraudsters often end up being punished by the banks.
  • The Pandemic – According to some estimates, payment card fraud in 2020 cost online merchants in the U.S. $11 billion. Merchants who had to let go of their customer service teams suffered the most.
It’s clear that online merchants need help to address this ever-growing threat of chargeback fraud. Unfortunately, many online businesses assume that their chargeback rates aren’t good enough because their services aren’t good enough. 

Many merchants even misjudge their win-loss ratios because they don’t have the time/resources to track data regarding their chargeback courses from their payment processors.

These inefficiencies lead to exceptionally overestimated win rates. Fake data like that can compel any online business owner to keep their chargeback disputes in-house. 

Thankfully, many online business owners have woken up to the fact that their in-house chargeback management teams aren’t experienced or skilled enough to tackle the odd circumstances they find themselves in.

No one expected the pandemic to drive online sales and subsequently increase the number of chargeback fraud attempts. That’s why many top online merchants are opting for chargeback management outsourcing solutions. These chargeback pros offer –

  • Full-Time Dedication – The only job of a trained chargeback management team is to stay on top of the most recent fraud methods and techniques. They focus solely on safeguarding their clients’ businesses. In-house teams that manage online eCommerce platforms can focus on other responsibilities— not fraud prevention.
  • Standard Operating Procedures – SOPs in chargeback management companies, are tried and tested fraud-prevention techniques. Online businesses can spend years establish their own in-house SOPs. Or, they can avoid those costs and have their third-party chargeback pros immediately get to work on protecting their businesses against chargeback frauds.
  • Cooperation – Online businesses that already have well-jelled in-house fraud prevention teams can benefit even more from getting an outsourced managed services solution. The offshore and in-house fraud management departments can collaborate to make online platforms impervious to chargeback fraud attempts.
  • Relevant Skills – Experienced chargeback pros are familiar with the best and the latest practices for fighting new types of chargeback fraud techniques in the market. From tracking each suspicious customer to constantly monitoring chargeback dispute processes – these experts use highly customized tools to make sure chargebacks don’t drain their clients’ finances.
  • Insights - Chargeback pros give their clients insights into why and how chargebacks are occurring on their platforms. Based on this data, online businesses can craft customized strategies that work specifically against the types of risks their platforms face.

Having a multilayered fraud protection strategy is vital for online businesses looking to provide seamless online ordering experiences for their customers. Partnering with providers of managed services solutions can help them achieve these objectives.

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