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Chargeback Prevention – Know Your Options

High-risk merchants can sometimes feel like the mythical Prometheus when it comes to chargebacks. Each day, they chain themselves to their work, striving to detect fraud and prevent legitimate errors that might lead to chargebacks. But just when they think they’ve gotten it right, in swoops one that knocks them down again and seems to completely devour the work they’ve done. So back to work they go the next day and again their work is frustrating. It’s no wonder why many high-risk merchants have a short business cycle!

But, it doesn’t have to be this way. Many tools exist to help you defeat chargebacks – the trick is identifying which one is right for you. Below is a summary of some of our favorites that can work separately or in tandem with other processes to help you win even the most difficult struggle against dissatisfied customers and pernicious fraudsters.

Chargeback Prevention

1. AVS & CVV

The Address Verification System (AVS) and Card Verification Value (CVV) are two of your most basic tools to prevent fraud-related chargebacks. All merchants, regardless of risk, should use both of these for every transaction. AVS compares the billing address your customer inputs during the checkout process against that customer’s bank records to make sure the two match. Likewise, the CVV checks the 3- or 4-digit code the customer inputs against the code on file with the credit card company for the card number that was issued. If a customer is unable to provide either of these, it is a strong indicator of fraud and of an impending customer chargeback should the order go through.

2. Velocity Limits

This simple tool monitors how often a customer tries to place an order. Since fraudsters will usually try a single small transaction first to test the card, then order as much as possible as quickly as possible, limiting the number of orders that can be placed within a certain time frame can help pinpoint fraudsters and robots who are trying to quickly use the credit card balance before detection.

3. Blacklists

This tool is another one that’s easy to implement, but which is often overlooked. Once you’ve caught a fraudster don’t fall prey to him again. Blocking the IP addresses of past offenders or even whole blocks of IPs from specific regions can act as a common-sense safeguard against fraud-related chargebacks, but has pitfalls. Read more here.

4. Fraud Detection Software

Fraud detection software uses algorithms and the internet to detect signs of fraud that a person could not – such as the age and validity of email addresses, the true IP of the computer from which the order is being entered, whether or not the customer is using a proxy, and how many places the credit card has already been used. Many different types of software exist with varying degrees of sophistication to suit all types of businesses.

5. Chargeback Alerts

Chargeback Alert software notifies you the moment a customer initiates a chargeback with the credit card company. Since the credit card companies are large and move slowly, this gives you a chance to quickly issue a refund before the chargeback can be processed. Once a refund has been processed, the chargeback cannot be issued. Although this does require the financial loss of the sale, it protects your chargeback ratio and discourages the fraudster from making further attempts on your site.

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