Chargeback Management

Fraud in the form of chargebacks is costly, as merchants lose precious revenue and incur a fee for each chargeback received. If the chargeback volume gets too large (over 1% in most cases), merchants also face hefty fines from card associations and the potential loss of their merchant account.

Understanding Your Chargebacks

The first step to successfully challenging chargebacks is to distinguish between actual true fraud and fightable chargebacks. Understanding the automated chargeback feeds from payment processors is difficult and time-consuming. Because of this, chargebacks often fall through the cracks and are mis-categorized as true fraud when in fact they could easily be challenged and won.

Optimizing Chargebacks

While chargebacks should be challenged to avoid unnecessary revenue loss, merchants should not make complete elimination of chargebacks as the goal. It is necessary to maintain a chargeback rate that falls below the excessive chargeback rates established by the credit card associations to avoid increasing fines and possibly the loss of your merchant account.

However, a merchant with a chargeback rate that is too low (below .7% in most cases) could probably be more aggressive with their customer acquisition strategy. At the same time, online merchants need to worry about the effects of false positives -the situation in which perfectly valid transactions are refused on suspicion of fraud. Depending on the merchant's ACLV and Chargeback to Transaction Ratio (CTR), it is better to take a chance on potentially risky customers as the cost of chargebacks will be much less than the potential revenue earned over the customer's lifetime.

For digital goods merchants who have very minimal cost of goods and are within the chargeback guidelines set by the credit card associations, the key is to maximize customer acquisition while recovering friendly fraud losses. Consider chargebacks as a line item in your marketing budget - allowing you to cast as wide a net as possible when acquiring new customers. The key is to find the optimal chargeback rate for your particular business.

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• Discover how a balanced approach to fraud screening can minimize fraud costs while enabling customer acquisition.