Learn how to use best practices to protect against disputes and fraudulent payments.
Creating an effective dispute and fraud prevention strategy that best suits your business can help prevent fraud from occurring. By employing some of these best practices as part of your overall strategy, you can avoid excessive chargebacks and reduce potential customer burden and losses.
These are tools that any user can leverage to reduce fraud and dispute incidents.
Clear and frequent contact with your customers can help prevent many of the reasons for disputes. By responding to issues and processing refunds or replacement orders quickly, your customers are far less likely to take the time to dispute a payment. Make your customer service contact information easy to find, keep customers updated throughout their order process, and provide updates about deliveries.
Caution: Include a clear description of your refund and cancellation policies in your terms of service. You can require your users to agree to your terms of service to increase the likelihood that card issuers respect your policies in the event of a dispute.
You should immediately refund any payment you’re sure is fraud (unless you’re covered by some form of liability shift, as with 3D Secure). If you know you’re going to receive a fraud dispute on it, you can save yourself the dispute fee, the increase to your dispute rate, and the potential loss of product by fully refunding the fraudulent payment.
Caution: While customers can’t dispute fully refunded payments, they can still dispute partially refunded payments. Card network rules even allow for a payment that has been partially refunded to be disputed for the full payment amount.
However, sometimes you might suspect a payment is fraud, but your suspicions fall short of absolute certainty. Sometimes it makes sense to aggressively refund every charge that falls into this gray area and sometimes it doesn’t.
You might want to pursue an aggressive refund strategy if any of the following apply:
If none of the above apply, you might want to be more conservative with how frequently you proactively refund charges you suspect are fraudulent.
If you ship physical goods, consider delaying the shipment by 24-48 hours. This time gives cardholders a chance to spot and report any fraud on their accounts. You would still receive a fraud dispute in this scenario, but at least you wouldn’t also lose the merchandise. Not all cardholders check their statements on a daily basis, however, and their card issuer might not proactively notify them about the transaction.
Customers that request overnight or expedited shipping should be considered higher risk, as the increased cost of such services is of no consequence to fraudsters. One tactic you can use to identify these types of payments is to offer same day or overnight shipping at a very high cost–many times more expensive than any other shipping option you provide.
It’s far less likely that any legitimate customer would pay such a high cost, but a fraudster would want the goods to be shipped as soon as possible and have no regard for the additional cost. You can then manually screen any customers that opt for the anomalously expensive shipping option and scrutinize the order to determine if it looks genuine.
Shipping to a verified billing address which has passed postal code and street address checks is the safest option. When using an address that hasn’t been verified, you can’t prove that the order was shipped to the legitimate cardholder if the payment is later disputed.
This doesn’t prevent you shipping to a different address, though you should do all you can to mitigate the risks involved. For instance, you may only want to ship orders to a different address for returning customers you already know to be legitimate, or who provide a fully verifiable billing address. In addition, any of the following could indicate the payment is suspicious:
Reviewing the order and the shipping address information can help you determine whether or not the order presents an unacceptable risk to you.