Merchants whose chargeback rate exceeds the acceptable 1% by VISA and Mastercard are often required to take corrective measures by the Acquirers. However the excessive chargeback rate may not only be the result from fraudulent activities, often they are indication of various business operational problems and errors on the merchant’s side.
Dealing with chargebacks effectively requires a balanced approach that covers all these cases. The most common technique: blacklisting cards or users related to chargebacks is not sufficient to avoid chargebacks. In a previous post we discussed also how to use refunds to proactively deal with chargebacks, especially those related to friendly fraud.
Every merchant has to understand the nature and impact of their chargebacks for choosing the right strategy to avoid them in the future. Careful chargeback data analysis and comprehensive interpretation is a crucial step to reveal the actual problems and build the right strategy.
Chargeback data may be analyzed through different parameters. Each chargeback is assigned a specific reason code. Reason codes carry out the most important information that help distinguishing the fraud-related disputes from those caused by errors on the merchant’s end. There are more than 100 chargeback reason codes outlined by the card brands (Visa, Mastercard, Discover, American Express and others), and unfortunately they are not used consistently across brands, issuers, etc — making the analysis a bit more cumbersome. However, understanding the reasons for chargebacks becomes crucial for building an effective strategy to manage them.
For example, it is often the case that merchants with excessive chargebacks are spending money on anti-fraud solutions when the actual problems are lying in their business operations, i.e. issues with the product, delays in shipping etc.
For fraudulent chargebacks the merchant’s strategy should result in adjusting fraud screening rules, and in some cases, in constraining the business to areas and markets where they can better manage the risk.
Crafting the proper strategy does require analyzing the chargeback data in the context of other parameters. For example, breaking down chargeback data by the issuing bank country as well as the IP Geo location of the disputed transaction, provides important insight, particularly, when you are selling worldwide.
Statistics show that evaluation of chargeback volume by the country of origination or IP Geo location is important when correlated against the volume of sales in respective locations. For example, if 70% of your sales occur in the US and the remaining 30% outside of the US it is important to see what is the breakdown of chargebacks based on the location. The location breakdown will identify the countries and/or regions where chargeback and sales volume significantly overlap. This should translate in implementing anti-fraud rules based on geolocation likely minimizing the likelihood of a chargeback.
According to recent data merchants that sell worldwide often receive chargebacks from outside the country for failing to ship on time or due to damaged goods. Identifying merchant error chargebacks along with the respective locations will help you spot business operational issues more specifically and manage to improve your procedures going forward.
Other parameters such as the card brand and card type may provide you with additional information about your chargeback portfolio and help you implement the right techniques to avoid them in future. This breakdown has value due to different level of risk associated with debit and credit cards. Credit cards provide a significantly greater timeframe to file a chargeback than debit cards. Also the fees collected at the chargeback representment may vary by the card type, brand and issuing bank as well. So, analyzing the card brands and types you may spot trends associated with chargebacks and costs related to particular card type and brand and further act on mitigating the risk.
Every merchant’s chargeback portfolio has a unique nature and is composed of combination of multiple variables. IdentityMind™ provides a comprehensive chargebacks analysis reports along with customizable anti-fraud set of rules. Performing an ongoing monitoring and analysis of chargebacks data is one of the key steps to achieve growth by keeping you reject rates low and prevent the undesired losses by avoiding chargebacks.
Feel free to contact us for sample reports and a demo of our chargeback analysis interface.
