COMMENTARY: The Best Defense Against Chargebacks? Good Data

The U.S. payments industry is keeping a watchful eye on friendly-fraud chargebacks now that the EMV liability shift is in effect. According to software enterprise CA Technologies, global card-not-present fraud by 2018 will be at least double the $2.9 billion logged in 2014. Fraudulent chargebacks, always a risk for sellers, are an even more likely possibility now for U.S. companies.

The best protection for this threat is good data.

Companies that securely collect the right customer and transaction data are in a better position to prevail when chargebacks are filed. This means going above and beyond the bare minimum needed to meet transaction-processing requirements. Businesses that keep only the transaction data that card networks require will face more lost revenue and more fees on friendly-fraud chargebacks that could have been re-presented successfully with the right information.

Visa Inc. recommends, but doesn’t require, that businesses collect: transaction time, a detailed description of the items or services purchased, customer email and billing addresses, and contact numbers. Shipping data, including delivery confirmation and receipt-signature records, can also be helpful. Companies should partner with their shippers to manage delivery data. All of this information can help resolve billing disputes early in the process, at the sales-draft request stage.

“Compelling evidence” that may also resolve chargebacks in favor of the business includes a copy of in-store pickup documentation like a signature or customer ID, a record of delivery to the customer’s delivery address (regardless of whether a signature was obtained), and records of previous undisputed transactions originating from the same physical address, IP address, email account, or phone number.

For sellers that deliver services or products entirely online, Visa will consider as compelling evidence the customer’s IP address, email address, and indications that the customer accessed the seller site or services after the disputed transaction was made.

MasterCard Inc. recommends that clients maintain records of all transaction disputes for submission if a chargeback is filed. These records may include written or emailed letters from the customer to the company and digital billing-dispute forms. They should be kept until either the dispute is settled or the time limit for dispute processing has passed.

Detailed transaction and customer data helps companies fight friendly-fraud chargebacks in the short run, and that can yield long-term benefits. Fraudsters who target CNP sellers may share their “wins” with other people or criminal groups who are looking for potential victims. Companies that successfully dispute spurious chargebacks are less likely to end up on a list of easy targets.

The combination of transaction and customer data can also help companies detect and analyze other chargeback trends and work to reverse them. For example, a spike in undelivered merchandise claims around the holidays means it’s time to take a close look at fulfillment, shipping and tracking. An increase in claims that merchandise was not as described indicates a need for better product photographs and descriptions.

Rounding up all this data requires a carefully thought-out process. Secure storage is crucial to maintaining customer privacy and trust. Companies should work with their payment processors to identify the best way to collect, protect, and access transaction data in case of a dispute.

It’s important to collect data from customers in a way that relieves privacy concerns and doesn’t overburden shoppers. For example, the more data customers have to enter during the checkout process, the likelier they are to bail out along the way—especially if they don’t see a good reason to share the information. Rewards programs that make return purchases simpler and faster are a classic way to encourage this info-gathering. They can also prove an established relationship and purchasing history in case of future chargebacks.

Much of the information that can support successful chargeback re-presentment may already be stored in the company’s customer relationship management system, in customer service logs, or with the sales department. A review of customer and transaction data stored in silos across the company can lead to better integration and a richer data set for combating friendly fraud.

Companies don’t need to collect optional data to meet credit card company transaction rules. But they do need to collect it and make wise use of it to reduce the number of chargebacks they incur.

—Linnay Zazueta is relationship manager at Forte Payment Systems, Austin, Texas.