Insider Tips to Prevent Credit Card Fraud, Chargebacks and False Declines

Upset man holding credit card with laptop on background.jpeg

This guest post was written by Rafael Lourenco, Executive Vice President of ClearSale.

As the owner of an online business, you’ve worked tirelessly to build a robust e-commerce site, increase your sales and stand out from the competition. The last thing you want or need while growing is to take a hit to your bottom line.

But credit card fraud, chargebacks and false declines can destroy your reputation and your finances. To keep both safe, follow these insider tips from a business that’s battling every day on the front lines of fraud – and set a solid foundation for future growth.

Fraud’s Biggest Red Flags: Can You Spot Them?

Fraudsters often use several common schemes when trying to complete a transaction. Keep an eye out for these common warning signs — they may help you stop a fraudulent transaction before it’s processed.

  • Different billing and shipping addresses. While differing addresses is sometimes legitimate (e.g., shipping Christmas or birthday gifts), it’s also a way for criminals to order and receive goods before the card owner realizes a fraudulent purchase was made.
  • Nonresidential addresses. Sometimes, deliveries to hotels or PO boxes are legitimate. But because it’s difficult — if not impossible — to know who picked up the delivery, merchants should be wary of delivering to these addresses.
  • Outlier transactions. Watch out for unusual transactions, like high dollar amount purchases shipped with overnight delivery or multiple orders with varying delivery addresses but placed from one IP address.

How to Avoid Friendly Fraud and Chargebacks

Another common form of credit card fraud is friendly fraud, which is when a customer makes a legitimate purchase but then fraudulently claims a lost shipment or problem with the order. The customer keeps the merchandise and gets their money back while the merchant incurs the cost and hassle of dealing with a chargeback.

While chargebacks are an unavoidable part of doing business, try to keep chargeback ratios — the chargebacks in a month divided by the total transactions in that month — less than 1%. Higher chargeback ratios can mean your business is leaking profits via excessive chargeback fees: Merchants are typically responsible for the cost of each chargeback and the related fees, which can exceed $75 per dispute, plus the expense of replacing and re-shipping lost or stolen goods.

But merchants can minimize chargebacks by implementing basic fraud prevention measures such as:

  • Requiring the credit card’s security code. Because this code is printed directly on the card, fraudsters must have the card in hand to have access to this information.
  • Communicating to customers the business name they’ll see on their statements. This helps prevent chargebacks when a customer is confused by a DBA or parent company name that appears on a credit card statement after a purchase.
  • Limiting declined transactions. Because fraudsters often try credit card numbers in rapid succession hoping to find one that works, merchants should lock users out after a predetermined number of incorrect entries.

Minimize the Revenue and Relationships Lost to False Declines

Few things are more frustrating to a legitimate customer than having their online order declined.

These transactions are known as false declines, and they’re increasingly common: 40% of Americans have had a legitimate purchase incorrectly blocked or questioned.

Frequently, valid transactions are flagged or declined due to well-intentioned fraud protection efforts.

Most fraud protection systems use a complex formula (weighing up to 500 distinct elements) to comprehensively assess the risk that a transaction might be fraudulent. With this level of complexity, there’s not a lot of room for an experienced fraud prevention specialist to weigh individual transactions, which means valid orders can unfortunately get caught in the fraud filters.

The negative effects of false declines can be substantial. Businesses actually lose more money on false declines ($118 billion) per year than that to credit card fraud ($9 billion).

Fortunately, there’s a solution. You can lower your false decline rate while still maintaining appropriate fraud protection by:

  1. Manually reviewing questionable and high-risk orders. Manual reviews help identify fraudulent orders and give insight on distinguishing fraudulent from legitimate purchase behavior.
  2. Not rejecting transactions based on assumptions. If you don’t base your decisions on detailed data, you could miss out on sales opportunities. Additionally, the more legitimate sales you accept, the more information you have to fine tune your processes.
  3. Contact customers to verify purchases. Before flagging a transaction, contact customers to verify transaction details. Customers appreciate when businesses provide a secure online ordering process. In turn, merchants will validate more purchases and experience fewer lost sales.
  4. Employ a multilayered fraud protection program. Solutions that utilize highly skilled analysts and deep-learning algorithms to scan each transaction offer a more comprehensive approach to identifying and preventing false declines.

Partner With Industry Leaders to Maximize Online Sales, Minimize Fraud Risk

The constantly changing face of e-commerce — and fraudsters’ increasingly savvy ways — means it will always be difficult to differentiate between fraudulent and legitimate orders. As a result, there’s significant financial incentive for small businesses to implement comprehensive security measures that protect profits, reputations and customers.

Remaining attentive to the credit card fraud landscape and red flags for false declines can help protect your small business, but it’s a lot to keep up with on your own. Zoey understands that. And that’s why Zoey’s partnered with ClearSale — a trusted cybersecurity partner that reduces the fraud risk for e-commerce merchants through a combination of advanced machine learning technology and an extensive team of dedicated professionals.

Zoey has simplified advanced e-commerce: Merchants no longer need a tech-savvy web development team and a bottomless bank account to create a must-visit website. And Zoey’s partnership with ClearSale means that small businesses have access to the most powerful tools to help them minimize fraud, reduce false decline rates and shrink chargeback ratios.

Contact Zoey today to start your free trial and build an e-commerce website that will drive business and protect your revenue.

Leading smart people to solve complex problems in dynamic environments is Rafael’s signature skill. As ClearSale’s EVP, Rafael combines the company’s innovation-driven culture and emphasis on communication with a deep understanding of the statistical tools that underpin excellent fraud protection. From his base in Miami, he oversees ClearSale’s US anti-fraud operation by leading its commercial, statistical intelligence and IT teams and providing technical and executive management for all the operation’s employees. During his 8 years with the company, Rafael has also planned and executed ClearSale’s international business unit, directed ClearSale’s statistical intelligence area, and helped manage the company’s growth from 25 to more than 700 employees, including more than 500 highly trained fraud analysts. Rafael has a distinguished academic background. He earned his master’s degree in economics and finance at FGV-SP (Fundação Getúlio Vargas-São Paulo), one of the world’s leading policy and economic think tanks. Rafael holds a bachelor’s degree with great distinction in statistics from UNICAMP (Universidade Estadual de Campinas), internationally recognized as one of the top universities in Brazil and in the world.

Share on facebook
Share on twitter
Share on linkedin
Share on google
Creating a trial may take up to 60 seconds.

Ready to START?

Ready to START?

Fill out the form to request a personalized demo of Zoey.