When it comes to chargeback prevention, there are numerous options available to merchants. Some tools focus on targeting a specific type of fraud, while others are better at tackling chargeback reduction by eliminating errors or policy missteps.

Of course, developing a strategy to manage chargeback isn’t easy; in fact, many merchants will struggle with this process. The chargeback process is subjective, and many cases are left up to human interpretation. This is why fully-automated solutions might not be as effective when used by themselves. Technology won’t always compensate for a man-made problem.

Multilayer Chargeback Prevention is Essential

As an acquirer, the best advice you can offer is that implementing only one or two chargeback prevention tools isn’t a solid approach. Instead, they should develop a comprehensive strategy that includes multiple layers of fraud detection and error prevention.

Fraudsters are always learning and refining their techniques. To stand a chance of protecting against attacks and competing with evolving technology, merchants must keep their risk mitigation strategy up-to-date.

The first step is to identify the actual source of chargebacks that merchants are trying to prevent. While it sounds simple, your clients deal with inaccurate chargeback data more often than you realize. If the foundation itself is unstable, merchants end up using the wrong tools to fight fraud. This will ultimately create more problems than it solves.

A multilayer strategy refers to the deployment of complimentary chargeback prevention tools that reinforce one another. This provides better coverage and more accurate decisioning, while also providing better customer experiences. Merchants can begin by deploying the right tools to detect fraud wherever it occurs.

8 Essential Fraud Management Tools

There are several trusted tools and tactics proven to validate cardholders and detect fraud. You should encourage your clients to adopt these as part of a multilayer strategy to reduce the risk of fraud and help recover lost revenue:

#1. Card Security Codes

The three- or four-digit card security codes printed on payment cards help confirm that a shopper has physical possession of the card being used during a transaction. These codes cannot legally be stored by either merchants or the processors.

Merchants should ensure that customers can enter the card security code every time a purchase is made. Given that the card security code cannot be accessed online and is only available on the card, this will at least help make it more likely that the person behind a purchase is the cardholder.

#2. Address Verification Service

Address Verification Service (AVS) is another authentication tool available for merchants. It helps reduce risk by automatically comparing the billing address listed in the transaction against the address registered with the issuing bank. In the event that they are not a match, AVS will flag the transaction as suspicious.

Criminals don’t always have access to the cardholder’s billing address or other sensitive information, so AVS helps prove that the cardholder is the actual person carrying out the transaction. Merchants should always request shoppers to provide both billing and shipping addresses during checkout.

#3. Visa Account Updater (VAU)

Visa Account Updater is a credit card information clearinghouse that helps prevent chargebacks stemming from incorrect card data. VAU will notify the merchant when changes are made to the cardholder’s account, which is especially effective when managing recurring transactions. This will help prevent declines and other issues resulting from mismatched data.

#4. 3-D Secure 2.0

3-D Secure 2.0 (or 3DS2) adds another level of fraud authentication by requesting a predetermined security code. The function is similar to that of an online PIN code; fraudsters will have no way of identifying the security code. And, if the customer is unable to provide the code, the tool will automatically halt the transaction.

You can help your clients by getting them started or upgrading them to 3D Secure 2.0. Each card network will provide its own branded 3DS2 product, such as Visa Secure, Mastercard Identity Check, American Express SafeKey, Diners Club International, and J/Secure.

#5. Velocity Limits

When fraudsters get their hands on valid card numbers, they’ll try to get the most value from the card in a short amount of time. In response, velocity limits flag potential fraud based on the rate a buyer submits transactions.

Setting a velocity limit will scan the information submitted with each transaction and flag repeated submissions of the same information in a designated time period. Merchants can then use this data to identify potential cases of a fraudster engaged in card testing.

#6. Blacklists/Whitelists

Blacklists and whitelists cut back on fraud by identifying and preventing transactions that will likely result in a chargeback.

A blacklist bans known or probable fraudsters. It can block orders from a specific IP address, for example, or something more generic, such as the purchaser’s country of origin. In contrast, a whitelist blocks everyone except for those that have been pre-approved by the merchant. The list could be limited to a certain region, such as allowing customers only from the US or Canada and rejecting all other transactions attempted by buyers from other countries.

#7. Chargeback Alerts

Alerts help merchants avoid chargebacks that result from unauthorized purchases. When a fraud victim contacts the issuer to dispute a transaction, chargeback alerts notify the merchant and enable them to refund the transaction before the chargeback.

The newly-introduced Visa Response Dispute Response process function in a similar manner, allowing merchants to automatically refund transactions based on predetermined criteria.

#8. Network Automated Response Programs

There are some instances involving chargebacks filed unintentionally. In the event a cardholder doesn’t recognize a transaction, they might call the issuing bank and report it. However, if there were just a little bit more information available, the customer might have been able to identify the transaction, and a chargeback would be avoided.

Both Visa and Mastercard have their own automated response programs to help avoid customer confusion:

• Order Insight: Visa Order Insight is a plugin for the Visa Resolve Online platform. It sends automated merchant transaction data between issuers and participating merchants.
• Eliminator: Mastercard’s Eliminator connects agents from your organization to the merchant purchase information, allowing inquiries to be resolved without resorting to chargebacks.

The Threat of Fraud is Real, but Merchants Can Fight Back

Stopping transaction disputes is no easy feat. As we’ve seen, a merchant’s best chance is to adopt these proven-effective chargeback prevention tools, and to develop a fully-comprehensive strategy to tackle fraud.

Remind your customer that there’s no one-size-fits-all approach. Fraud is constantly evolving and fraudsters are becoming increasingly tech-savvy, but implementing the right chargeback prevention tools and understanding how to use them is a step that merchants simply can’t afford to skip.