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How to prevent payment fraud and chargebacks online

· 4 min read

Having an online business can be very rewarding, you can help people all around the world. It’s not always easy though, you need to accept credit card payments which sometimes lead to chargebacks which hurt your revenue, take up time and also impact your reputation with your payment processor.

Preventing payment fraud

This article will explain some common causes for chargebacks and how you can prevent them to have smooth transactions and grow your business online.

Unhappy customers

Chargebacks are often the result of an unhappy customer trying to get a refund. They have paid for the product or service but it didn't meet their expectations, to get their money back they tell their bank it was a fraudulent transaction.

Offer a free and fair trial

To make sure your customers are happy before they purchase you should offer a free trial where your customers can evaluate your offering. Make sure the trial is fair for the customer and fair for the business. It should be long enough that they can try your features and see the value of using them. But not so long that the business is giving away too much for free. Be clear about when the trial will end and what will happen.

For more about offering a fair and effective trial see Turning trials into growth.

Have a fair and generously refund policy

You should offer refunds generously and make them easy to get. Giving a refund is an opportunity to ask the customer and learn how you can improve, but be careful not to make it any harder for the customer.

Be fair with repeated refund requests, it’s possible that a malicious customer will ask for lots of refunds, try to understand what's going on and explain to them that you cannot give unlimited refunds.

Automatic refunds are a great way to show your customers you trust them and to impress them with good customer service. But be careful of repeated refund requests, some customers might even create multiple accounts to keep getting the refund. During your account creation process you should detect duplicate accounts and make it clear to the customer that you know they are creating a second account.

Preventing payment fraud

Credit card fraud

Chargebacks can also be from credit card fraud where someone might have stolen credit card numbers and are testing if they still work. They might not even want your product, they could just be testing the card to then use it elsewhere.

The illegitimate transactions are eventually seen on the owner's bank statement, who then calls their bank and disputes the change. The bank will issue the chargeback and you will get a fee.

Knowing your customers

To protect against illegitimate transactions you need to know who your customers are and trust the details they provide. Providing their details needs to be protected from abuse, someone shouldn't be able to repeatedly enter different details. You also need to prevent people entering invalid contact details like fake email addresses.

If they are repeatedly entering different details they are unlikely to be a happy customer and could be making illegitimate payments. If someone is entering fake details you won't be able to contact them if there is a problem with their order.

For more about detecting repeated details or detecting fake information see Turning repeated trials into growth.

Bots and brute force attacks

Sometimes chargebacks are from brute force attacks where a bot or script is testing lots of credit card numbers. Brute force attacks can happen suddenly and test lots of cards very quickly. The chargeback fees can be detrimental for a small business.

Bot protection is normally done by analysing the web browser, the device and analysing their usage patterns.

Preventing payment fraud

Growth without the chargeback pain

Upollo can be used to implement fair trials and refund policies and also detect the suspicious buying behaviour that can lead to chargebacks, and can be integrated with 3 lines of code. Not only is this far simpler and less error prone than building your own custom detection, it means you can quickly understand your customers better, how they use your product and get growing.

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