If you’ve ever looked into accepting online credit card payments (and chances are that you have, the “Pay” in “PayLane” isn’t there just for funzies), you probably fear chargebacks more than a one-on-one meeting with your mother in law. That’s what friendly fraud is – a monster in the closet that you never knew about. For merchants, processing card not present transactions (so basically, all online credit card payments) the risk of receiving chargebacks is daunting, and rightly so, since it can be quite costly. But there is only so much that you as a merchant can do to protected yourself against them – sure, you probably have the friendliest customer support team in the whole wide world and a well worded terms of service agreement, but is that enough?
Well, it is.. sometimes. The biggest risk for any online retailer is selling non tangible goods, which are becoming more and more popular with every minute. Internet stores are basically flooded with all things digital, whether it’s a subscription to a magazine or that awesome new MP3 that’s stuck in the back of your head. These purchases that we often make with the click of only a few buttons (heck, with all these one click purchases, who isn’t tempted?) are perhaps the root of the problem.
What is a Chargeback?
Chargebacks are a great way to protect the consumer and a method of establishing communication when a merchant refuses to talk to his customer. But what about those nasty clients who take advantage of this mechanism, that was really meant to protect them? What’s to stop a client from ordering thousands of dollars’ worth of movies, music and e-book downloads, and later filing a chargeback claiming that he/she never received the downloads?
Well, nothing really. In fact this phenomenon is not uncommon, and it’s been dubbed all sorts of things, including “friendly fraud”, “chargeback fraud” and “first party fraud”.
Naughty customers illegitimately file these chargebacks, hoping that banks will side with them (as is often the case, because it’s so hard to make an accurate ruling and the process does tend to favor the buyer, not the seller). Money hungry users will often try to find the most vulnerable merchant, for example one with a nonexistent or incomplete processing history (such as a startup), or one that doesn’t clearly spell out everything in their agreements be it the terms of service, a refund, or shipping policy.
Communicate, communicate, communicate
Taken straight from PayPal’s book (and probably any client relations/marketing guru out there), the more you communicate with your clients, the better. Not only will this boost your customers’ (existing and future) confidence in you, but it will also help resolve any doubts that your clients may or may not have. Moreover, what’s perhaps the moral to this story, you’ll have a lot to show if and when an illegitimate chargeback comes your way.
But doesn’t PayLane protect against chargebacks?
Well there is only so much we can do. Sure, we can attempt to prevent fraudulent purchases from high risk countries, or use Maxmind’s great fraud sniffing tools (which we do, by the way), but the problem with friendly fraud lies right there in its name – it’s “friendly”, therefore by definition, we are very limited in what we can do. A legitimate credit card owner can use his/her card to purchase items online and no one will be any the wiser. Even 3D-Secure will be no match against such extreme cases of deception. But as always, there are steps that you as the merchant can take to protect yourself:
1. CALL your clients – No, don’t pick up the phone and call them (not that you can’t, but that’s just not what I mean). Communicate, Authorize, Log and Like.
2. Communicate with them – As mentioned before, no one will get upset over too much communication, and the bigger the transaction, the more communication you ought to maintain. Of course, don’t forget to maintain a copy of all chats, e-mails, etc. for your own records.
3. Authorize at every step – This might be a no-brainer, but I mean more than just simple authentication (though that would be a good idea too). If your clients receive any form of electronic goods, then make sure that they alone can access your downloads page with their own, unique login. Don’t rely on shared logins or any sort of shared access, create and enforce strict access control.
4. Log like you’ve never logged before – As a programmer I thrive on the log files maintained by our deepest and darkest systems, but they can prove to be useful to just about any dotcom entrepreneur out there. Basically, a log file is your last lifeline when nothing else pans out. Do you want to prove that client X downloaded an MP3 track from your site? Show us your logs. Do you want to prove that a paying customer used your super cool online printing store? Show us your logs.
5. Like ’em – I know this may not be the advice you were scouring the internet for, but the relationship between a merchant and his/her customers is sacred (alas, all the customer satisfaction surveys I’ve encountered are now making sense). The bottom line is, while your customers may sometimes drive you to borderline insanity, they literally write your paycheck, so you had best put on a smile and send them those Holiday Greetings.
I hope I haven’t completely dismayed your aspirations of starting the next Amazon or some super-duper e-market. Online payments (and I really only mean credit card payments) are a great tool which will most probably guide us into the future, but it should not be taken lightly. Sure, PayLane’s superb support team will set you up with a merchant account and have you processing payments in no time, but you should do as much as possible to ensure all sides of the agreement are happy, and most notably, your clients of course!