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How to protect your company from chargeback fraud

Retailers are increasingly offering customers a choice of online shopping and payment channels but this leaves them open to new types of fraud – and online chargeback fraud is a growing area.

Research by King’s Business School in London has found that more online sellers are becoming victims of mass fraudulent buying. Also known as chargeback fraud, this occurs when buyers claim a refund for purchased items without returning them, typically on the basis of unfounded excuses such as 'items not delivered' or 'transactions unauthorized'.

One of the study's co-authors, professor Stuart Barnes, disputes the prevalent idea that online retailers are the main perpetrators of online sales crimes (for example by selling low-quality goods). He said that SMEs are now likely to be the victims of crime: “With vast numbers of SMEs selling products and services online to buyers all over the world, chargeback fraud has become a growing and massive problem in global e-commerce. Billions of dollars are lost every year, yet existing research has focused on the notion that buyers are subject to opportunistic sellers.”

One answer to this problem proposed by the study is that financial institutions could reduce the length of chargeback periods. It states: “Currently, buyers can contact their banks to exploit a credit card protection policy that allows them to reverse charges for many months if they are not satisfied with the ordered items.” The researchers also developed and tested a model that identifies a set of operational measures to enhance sellers’ trust and reduce their perceived risk, particularly through greater transparency of a buyer’s identity, signature mechanisms – such as smartphone fingerprint apps, and more effective tracking of goods in transit.

Taking steps to protect your company from chargeback fraud is particularly important because online merchants are accountable for the loss of delivered items, whereas card transactions initiated in person in shops are protected by the credit card institution.


This item appears in the following sections:
Fraud Prevention
Minimizing Fraud Procedures
Minimizing Payment Fraud
Payments - Collecting at POS
Collecting Payments on the Internet
Collecting Payments via Mobile

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