The Best Tools and Strategies for Chargeback Prevention

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    Card payments have made making purchases infinitely more convenient. This has benefitted both business owners and their respective customers. However, one particularly troublesome part of card payments is chargebacks.

    A chargeback is a charge that is returned to a customer after they dispute a transaction or payment made on their credit card or debit card. There can be a slew of different reasons for this ranging from fraud to merchant error.

    Fraud is a major problem as consumers in the United States lose billions to fraud and identity theft annually. While this is problematic on its own, it also often comes with a chargeback fee that varies depending on the payment processor. Chargebacks can be bothersome, as they can be quite costly for you.

    Luckily, there are tools and strategies that businesses make use of to prevent chargebacks. By knowing more about these strategies and tools, you can improve your business as well as the overall customer experience.


    Tools for Chargeback Prevention

    Address Verification Service

    When it comes to preventing chargebacks, fraud detection is key. An effective way to reduce fraud risk is by making use of an automatic address verification service (AVS).

    What this does is it automatically checks the address listed on a purchase and cross-checks it with the address listed on the card issuer's database. If the address on a purchase doesn't match up with the address listed, the AVS automatically flags the transaction.

    This is effective as fraudsters don't always have the vital information of their victims. On your part, you'll want to request that your customers provide both a billing address and a shipping address in order to get the most out of this chargeback prevention tool.

    3D-Secure 2.0

    3D-Secure 2.0 is an identity verification tool offered by processing networks like Visa and Mastercard. It is a pre-authorization tool that focuses on preventing fraud from happening in the first place.

    The way it works is simple: Stores send the card transactions' details such as the IP address, device information, and other user details to the issuer. The card issuer then checks if this information matches the information that they have on the cardholder.

    Now, if something is amiss the cardholder will need to verify their identity before the transactions push through. Pre-authorization tools like this go along way when it comes to stopping fraudsters, saving you and your customers a lot of time and money. This makes it one of the most effective chargeback prevention tools available.

    Prevention Alerts

    While they don't necessarily reduce the occurrences of fraud as it happens after the checkout process, prevention alerts can be a useful tool when it comes to resolving disputed transactions.

    Companies like Ethoca offer services that notify businesses in real-time when a cardholder has disputed a transaction. From there, you will then have time to resolve the matter—effectively preventing a chargeback and the chargeback fee.

    This acts as your last line of defense when it comes to preventing chargebacks. What's great about this is that it helps your company as well as improve the overall user experience given how it allows you to fix issues that your customers as quickly as possible due to the real-time alerts.

    Strategies for Chargeback Prevention

    Merchant Best Practices

    While chargeback prevention tools can help an organization reduce the occurrences of chargebacks, strengthening policies and fine-tuning every step of the transaction can also go along way when it comes to fraud prevention.

    Following procedures and best practices will also minimize the risk of merchant errors, which are also a cause for chargebacks. Remember that organizations also have to do their part when it comes to minimizing the risk of such occurrences.


    A blacklist will go a long way when it comes to reducing transactions that are likely to end up as chargebacks. Blacklisting is simple, it just bans certain individuals from transacting with your organization. This approach prevents fraudsters or malicious cardholders from purchasing a product or service from your business.

    Blacklisting can be approached in a number of ways. You can ban an individual's location or implement wider limitations and restrict purchases to customers that are located in specific countries.

    Fraud Scoring

    Fraud takes on different forms. This is why you'll want to be adaptive in order to fight fraud effectively. Fraud scoring makes use of machine learning to make sure fraud detection is on point. This is vital as fraud detection brings you closer to fraud prevention.

    Fraud scoring is an effective chargeback prevention strategy as it can flag a dubious transaction based on certain fraud indicators. The system will take elements such as the account information, email address used, the location where the purchases are being made from, and previous transaction history to determine if a cardholder is a victim of fraud.

    Machine learning and artificial intelligence are innovations that have had a significant impact when it comes to making transactions safer for both the company and the consumer due to its fraud prevention capabilities. By analyzing data through machine learning, a transaction executed by a fraudster is much more likely to be detected.

    Frequently Asked Questions

    What are the different types of frauds?

    There are two types of frauds associated with debit cards and credit card payments: criminal fraud and friendly fraud. The main difference between the two is the individual perpetrating the fraudulent act.

    In the case of criminal fraud, fraudsters victimize cardholders in order to use their card to make illicit purchases. On the other hand, friendly fraud is committed by the cardholders themselves. Friendly fraud often involves loopholes or flaws in the system in order to dispute valid purchases.

    What should I look for in chargeback prevention tools?

    The most important thing when looking for a tool to prevent chargebacks is its ability to either catch frauds before they happen or tools that allow you to address the dispute immediately.

    Authentication tools can be quite useful to prevent fraudsters from victimizing cardholders.
    We hope that you found this information useful when it comes to reducing the risk of chargebacks. For more information on payment processing, check out Processing Card. If you have any more questions regarding the topic or if we missed anything, don't hesitate to contact Processing Card today!