As cash payments continue to dwindle, card payments have rapidly advanced in technology, making cards the safest and preferred way for consumers to purchase.
In fact, 98% of the UK population owns and uses a debit card. But new advancements also bring new security risks. Once a humble swipe and sign, the chip and pin cards we see today, play a small part in the way banks continuously work to protect us against fraud and theft.
Sadly, from time to time, card fraud does occur. Yet while it’s an infrequent occurrence, it is something that small business owners should have an understanding of. This includes knowing what to do when a merchant chargeback is filed, and how to spot in-store fraud to prevent merchant chargebacks from occurring.
What is a merchant chargeback?
‘Merchant chargebacks’, ‘credit card chargebacks’, or simply ‘chargebacks’, are all terms used to refer to an instance when a customer’s card issuer disputes the transaction on their behalf. Once this has occurred, the issuer will reverse the payment, refunding the total amount to the customer’s account.
Why do chargebacks exist?
Merchant chargebacks are a way of helping customers who have been legitimately frauded and need to access their money quickly, without having to reach out to the merchant directly.
The idea is that once a customer has spotted suspicious card activity they can contact their bank, who will then take the necessary actions in order to ensure their money is returned to them.
The bank will typically ask the card owner some questions about why they think their card has been misused and the possible reasons– i.e. not being vigilant enough when protecting their pin number, or losing a card and not cancelling it.
Additionally, it will be important for the card owner to prove to their bank that the transaction made was not made by them. This is most obvious when transactions have been made in a different country of residence, or large sums have money have left an account during suspicious times.
Reasons for a credit card chargeback to occur
As a small business owner, your relationships with your customers matter and you’ll do anything you can to avoid uncomfortable or volatile situations. That’s why it’s key to understand the reasons why your customers have chosen to dispute a transaction against you.
Most of the time, there will be a legitimate reason for doing so– but it may require closer inspection to understand the thought process. Here are some of the most common reasons for requesting a merchant chargeback:
- Items were not as promised, faulty or not to standard: while there should be easier ways to solve customer dissatisfaction, sometimes customers who are unhappy with a service will dispute it directly with their bank without you even knowing
- Merchant errors: sometimes cashiers can make keying-in errors which leave customer’s confused as to why they’ve paid £60 rather than £6
- Hardware errors: slow processing from a poor signal connection from your card terminal, can mean that a customer is charged twice for one transaction
- Fraud: if a customer believes that their card has been misused by someone else to make purchases either instore or online without their consent
- Miscommunication or confusion: more commonly, people are issuing chargebacks because the payment descriptor on their statement is too vague for them to recognise, so they treat it as suspicious activity (this can also be known as ‘friendly fraud’)
How to prevent merchant chargebacks
Now you have a better understanding of why a customer may request their money back, you can take the necessary steps to protect your business from avoidable disputes.
Create consistency with your trading name
The most common chargebacks come from customers who are unable to recognise a company on their statement due to a different trading name. If your customers know you as one name, but you’re registered as another, it’s not surprising they will dispute your charge when they don’t know who you are. Keep your naming consistent and stick to a DBA (doing business as) name.
Be transparent and honest
Regardless of chargebacks, as a business owner you should always be honest and transparent with your customers on what they are getting. While a good salesperson will accentuate the positives and make the product hard to turn down, they shouldn’t be untruthful when it comes to integral things such as the costing, quality, lifespan and features.
Chargebacks are most likely to happen on ecommerce stores when customers have not physically seen the products. However, merchant chargebacks can occur when a customer has received an item which does not meet their expectations and they aren’t able to communicate with the retailer in order to resolve matters efficiently.
When you spot a chargeback notification of this nature, it’s best to act quickly and reach out to the customer directly to try and rebuild trust and a relationship. Offer to call the customer and listen to why they’re not happy and see if you are able to work out a resolution.
Refresh staff training
If a high number of disputes have come from payment mistakes from your card machines, technology or cashiers, then you may want to give your cashiers a training refresh, or reevaluate your hardware, to see if you can eradicate human error.
Spotting in-store fraud
The most legitimate cause of chargebacks, and the reason they exist for consumers, is to prevent card fraud.
If a bank statement is showing an unusual transaction that the card-holder didn’t make, it means they have fallen victim to theft and therefore are able to dispute the transaction with their bank. Their bank will then investigate the transaction and usually return the money for them and claim it back from the merchant.
Although the merchant is not to blame, they are often the biggest victims of chargebacks, as they end up covering the costs. With this in mind, it’s advisable that businesses are alert to the signs of in-store card fraud and act to prevent it there and then.
It’s never easy to detect fraudsters, and it’s even harder to try and question them, due to the uncomfortable confrontation it can cause. However, there are signs that cashiers and shop assistants should look out for when processing card transactions in their store:
- Customers that try to rush cashiers through the transaction
- Customers that behave erratically and distract cashiers by asking them for multiple requests at once while they put (bags, gift wrapping, separate receipts etc.)
- Customers with a random selection of high value items (different sizes, colours, gender etc.)
- Customers that present a very worn card that ‘cannot be used in the chip and pin reader’
How can you prevent card fraud when taking card payments?
- Where possible, only accept EMV chip and pin card payments with your card machines
- Only accept authorised cards in your business which are AVS verified, a standard which is supported by Visa, Mastercard American Express and other major cards
- Become PCI DSS compliant and ensure that you and your staff are trained on the importance of protecting your customer’s data
- As part of your PCI compliance, only use card machines with end-to-end encryption or point-to-point encryption
What should you do if you suspect fraud in-store?
- Try to remain calm and keep the customer at the till for as long as possible
- Ask to check the customer’s identity credentials and the credentials of the card
- Check over their card to see if it has any noticeable counterfeit qualities such as a damaged magnetic strip or no hologram stickers
- Avoid direct accusations, but instead ask the customer questions to find out more about the origin of the card
- Ask the customer if they mind making a signature
If you’re convinced the card being used is fraudulent, make a Code 10 authorisation check with the issuing bank. Details on how to do so can be found in the Code 10 section of the UK Cards Association guide.
Protecting your small business
Accepting card payments means that on the rare occasion you may be putting yourself at risk of merchant chargebacks, for a number of reasons completely out of your control. However, if you have a watertight security and you practice the above best practices, you can minimise the risks substantially.
If you need to become PCI compliant but don’t know where to start, let us take that off your plate. No fuss, just security you can trust.