It’s no secret that ecommerce is big business.  Every 30 seconds it generates $1.2 million in sales in the United States.  It is also no secret that Americans love their credit cards.  In 2013, Americans used their cards to spend $4.6 trillion and have 278 million Visa cards.  That’s all fine and good except when it comes to chargebacks, which are instances when a transaction is found to be invalid.  These are rare, they only happen .01% of the time but .01% of $4.6 trillion is a lot.  That’s why businesses must be diligent when selecting merchant account providers.

But how do chargebacks happen?

• Fraud: This is when a card is used without the cardholder’s permission.  The merchant loses not just the cost of the sale but is charged a fee.
• Credit transaction not processed:  This is when an item is returned but the customer does not get the refund.  Again, the merchant loses the sale but also charged a fee.
• Non-delivery: A customer buys something and they claim they never get it.  The merchant is responsible for the cost. Sometimes, this is possible but other times, it is “friendly fraud” on behalf of the customer.  Merchant chargeback protection is crucial in these cases.
• Technical issues:  This when something goes wrong in the merchant credit card processing.  Sometimes things go wrong with the communications between businesses and merchant account providers.  The business deal with the merchant account providers and the customer is refunded the second charge.

The only case where a business can really dispute a chargeback claim is if they suspect the customer received the item and is lying, or perpetrating “friendly fraud.”  It is easier for brick and mortar businesses to fight this because the person walked in and bought something but what about online sales? These are the companies that need secure payment processing plans the most because all a customer has to do is claim they never ordered something. The banks don’t care about the merchant but their loyal customer.

So, what’s an ecommerce business to do?  Proof of delivery won’t help because the person can just say, “That delivery never happened.”  There is the option to sue, which is long and costly but law enforcement is not keen on helping out in these cases.  The best thing a merchant can do is implement good chargeback prevention plans.

Preventable steps:

• Check the address.  If a company finds anything suspicious, decline the sale.
• Use the CCV process — that’s the number on the back of the card.
• Send everything with a tracking number.  This won’t prevent the fraud but will help with the dispute process, not much, but it’s something.  Also, the person might not go through with it if they know they have to sign for a package.

The credit card chargeback process is long and tedious.  Not only does it cost a business time — to despite the chargeback will cost a business a lot of time.  That’s time that can be spent with other clients or customers.  The bigger issue is that three quarters of the cases will end up costing the business the sale and a fee.