Coordinated fraud attacks are more common every day. Additionally, fraudsters have become increasingly sophisticated, finding loopholes in verification systems. Thereafter, they exploit it with constant hit, making transactions that blend in easily with genuine ones. By the time merchants realize that they were attacked, they have accumulated too much losses from chargebacks and associated costs. Chargeback protection should not be an afterthought, but one of the priorities merchants deal with.

When dealing with chargebacks, these are the most common reactions amongst merchants. However, these attempts can be detrimental for the business in the long term.

How are merchants limiting their growth?

1. Setting up restrictions and rules

One common approach that merchants use is to set buying limits for customers to reduce the risk of fraud. These rules vary, e.g. restricting the number of orders made in a week, or a value cap of each order. As a result, merchants end up blocking orders that do not comply with the restrictions. However, many genuine customers are blocked as well – especially big spenders who buy more than the usual customers. Although this approach reduces chargebacks, revenue growth becomes slower as customers are discouraged from spending more.

2. Requesting additional information

When chargebacks accumulate, merchants may start requesting for information such as the proof of residence or identity. For digital goods merchants, this is a normal reaction as they receive less information from the user i.e. only the email address. However, customers can easily refuse to disclose any sensitive information. On top of that, they could simply take their orders to a competitor if they are unhappy. And with the rise of identity fraud, how can merchants know that the information provided is authentic? It is extremely easy for fraudsters to make orders with false or stolen, yet reliable, information.

3. Multiple Identity Checks

For merchants with high volumes, setting up identity checks before the checkout page is relatively normal to confirm the buyer’s identity. However, merchants perceive this as a “necessary evil” despite increasing friction to the buying process. With such checks, cart abandonment rates will increase, therefore negatively affecting the sales volume.

4. Reducing Payment Methods on the Web Store

Once merchants realize that a certain payment method has the highest chargeback volume, they will commonly divert customers to other payment methods or even stop offering that methods completely. Although shutting down riskier payment methods could reduce the general chargeback rate, offering lesser of the common payment methods will also bring forth a reduction in sales.

What can merchants do for chargeback protection?

It is important that merchants are aware of the threats to their businesses and attempt to reduce the threats. However, imposing restrictions on orders and payment methods, or creating friction for customers can cause more damage in the long run than fraud itself. The key to minimize fraud does not lie in the restrictions or the payment methods, but in the verification system. A comprehensive, reliable fraud verification system that focuses on increasing your acceptance rate as much as it focuses on protecting your business against chargeback and fraud is essential to achieve business growth.