The internet is too much sometimes: you answer emails, browse the web, scroll social media, get messages, and so on. All these can make you let your guard down, which is what scammers want. Especially when it comes to account takeover fraud. However, there are ways to prevent it, and Genome‘s team is ready to share our insights. What is an account takeover? An account takeover (ATO) occurs when a malicious actor gains unauthorized access to someone’s personal account, varying from social media to a banking app. After that, the scammer steals the individual’s money or personal information. How serious
Chargebacks — the process of forcible returning of money from the merchants (business) account back to the cardholder (customer` credit/debit card). There is another way in a financial system for customers to get the money back—refund. The difference between the refund and chargeback is that refund is an agreement between merchant and customer, which doesn’t involve the bank. But in this article we will talk about chargebacks as the processes of forceful money return that can cause after-effects for merchants. Chargebacks are usually initiated by the customer (cardholder) who contacts the bank (the one who issues the card) with the request to reverse the transaction due to some reason.
An average time for the chargebacks to be processed is around 60 days.
Reasons for chargebacks to occur:
1. Fraudulent transactions. This reason comes first, as fraud is still number one danger in online payments. Cardholder turns to bank and claims that he didn`t buy/order anything from merchant and didn`t make any transactions.
2. Failed subscription cancellation. As merchants are renewing subscriptions automatically after the expire date, cardholders are most likely forget about this date to cancel the subscription.
3. Customer isn`t satisfied with the service (product). It can happen if you do not have a clear description (explanation) about your service and what customer will receive after the payment. The other reason is the discrepancy between the expected and real service (product).
4. Problems with the transaction. During the payment, an error was made, or the incorrect billing took place.
5. Currency exchange issues. This problem may occur if customer is paying not in his own currency and exchange rates differ from the ones shown on merchants website.
6. Authorization issues may occur when the website where the payments take place doesn`t have a proper security procedure, and the valid authorization was not performed.
7. Friendly Fraud. Is kind of the reverse fraud to the traditional one. In this case the customer is trying to get the money back after receiving the service (product), claiming that transaction was made fraudulently.
Parties involved in the chargeback process:
1. Customer—cardholder—a person who made a transaction, paid for service/product.
2. Issuing bank—bank who issued the card to a customer.
3. Merchant—the seller of goods, a provider of services.
4. Acquiring bank – a bank of the merchant.
5. Card association—companies who issue cards (Visa, Mastercard, etc).
How does the chargeback procedure is performed:
1. Cardholder (customer) sees unrecognizable transaction on its credit card statement. He didn`t make that transaction or he can`t recognize the amount of the transaction, etc. Then customer contacts its bank, the one that issued the card, and asks them to check what was that transaction.
2. The bank (issuing bank) contact the merchant’s bank with the request to prove that transaction was performed legitimately, or that customer has received the product/service he paid for. (the proof can be: invoice, receipt, POD, etc.)
3. After the issuing bank receives (or if it was a fraudulent transaction—not receives) the evidence from the merchant bank, cardholders` bank has to decide – whether transaction was valid.
4. If both banks agree that transaction was valid – bank informs customer about the proves provided and the decision that was made, the customer has to pay for the service/product. If the customer doesn`t not agree with the proof, he can continue the dispute and begin the arbitration. If both banks agreed the transaction wasn`t valid—the customer will receive his money back. If the banks didn`t come to an agreement, they start the process of arbitration.
5. Arbitration—is the process where the decision whether the transaction was valid is taken by the card issuing company (Visa, Mastercard, etc) as the final instance. The card issuing company considers the proves provided by the banks and decides about the chargeback.
Note: Usually the chargeback issues are solved by banks on their own. The arbitration process can cause banks the lose of time, fees, and penalties.
To stay in the safe zone, any business has to make sure their chargebacks are not acceding to the limits determined by card associations:
The formula to calculate the limit is the same for both Visa and Mastercard, but just with the very little difference: 1% means 1 chargeback on 100 successful transactions. So to calculate the level of chargebacks of your company, you need to divide the number of chargebacks your company had in a month to the number of transactions (the same month for Visa, the previous month for Mastercard).
100 chargebacks/10 000 transactions = 1% chargeback level.
What risks chargebacks can entail for merchants?
Overcoming the limits of the chargeback transactions may cause a merchant to become under the risk of his account being terminated.
If company’s monthly level of chargebacks exceeds the threshold, the business will have to pay excessive fines.
If the exceeded level of chargebacks doesn`t lower, the acquiring bank has all the rights to end the account.
If the account is terminated, the acquiring bank may add business to a Member Alert To Control High-risk merchants list (a.k.a MATCH list). This means the business cannot open a new merchant account until they are out of this list.
If the acquiring bank decides not to terminate the account, they will probably force the merchant to get a high-risk account.
How business can prevent chargebacks:
1. Make sure your website complies with all the security requirements, and all the transactions on your website are secured.
2. Provide the availability of multi-currency payments on your website.
3. Provide a comprehensive customer support to your customers. Answer quickly when your consumers have requests upon transactions and any related issues.
4. Provide clear information about your company and services/products provided on your website.
5. Show the prices on your website with all the fees that may occur (delivery, etc)
6. Make sure your refund policy is shown on your website and customers can find it easily.
7. Subscription: notify your customers in advance about the expiring subscription date and that you will extend it. Your clients need to be notified and have time to cancel it if they want to.
Maintaining the low level of chargebacks and fraud activity is crucial for merchants not only to keep a good relationship with its customers but also to correspond to the rules set by banks and card associations.
Genome is a new generation of the financial ecosystems, that was created by the merchants and for the merchants, to conveniently manage all their personal and business finances in one place. The platform provides clients a wide range of financial services: fast online merchant accounts opening, multi-currency merchant accounts, transfer services with low fees, and much more.
Genome has been developed with the latest security practices to insure the safety of all the data and transactions.
Genome has partnered with Covery anti-fraud platform.
Check the Genome-Covery case.