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COVER STORY
32 Reduce Credit Card Chargebacks
Know With Whom You’re Dealing.
T is doesn’t necessarily mean asking new customers what they think of the New Orleans Saints or universal healthcare (if you’re curious or garrulous enough, go for it), but that one should ensure that the customer in a given transaction is indeed who he says he is. Again, this is becoming increas- ingly important, as more and more business is conducted in a non face-to-face manner. According to ecommerce payment management com-
pany CyberSource’s tenth annual survey of online fraud trends, fraud losses reached $3.3 billion in 2009, with fully 50 percent of those losses at ributable to chargebacks. Cyber- Source actually found the total losses to fraud down last year, from 2008’s $4 billion, but the 50 percent fi gure remained vir- tually the same. T e survey also found that merchants are increasingly turning to automated chargeback manage- ment tools to lessen the eff ects of double charges and the like. In 2008, 20 percent of surveyed companies said they employed such tools, while in 2009 that number climbed to 49 percent. In addition to the identifi cation
practices mentioned above, merchants should employ a method of veri- fying customer addresses. An automated address verification
system
(AVS) can make sure the address entered on an order form matches
that of the customer’s billing address. Most people using stolen cards will not give out the actual cardholder’s address, for obvious reasons. Besides AVS, a variety of other chargeback management
tools are available. CyberSource divides these into four cat- egories: Validation services (including CVN, used by 77 per- cent of survey respondents, AVS at 76 percent, postal address validation services at 34 percent, and telephone number veri- fi cation at 24 percent); proprietary data/customer history (including customer order history at 44 percent, order velocity monitoring at 35 percent, and customer website behavior analysis at 19 percent); purchase device training (Internet protocol, or IP, geolocation information); and multi-merchant data/purchase history (shared lists, 16 percent).
T e rate of fraud associated with
international orders is twice as high.
Obviously the larger a retailer’s budget, the more aff ord-
able these solutions are. CyberSource reports that in 2009, 70 percent of merchants reported using three or more fraud detection tools for automated screening, with 4.7 tools being the average, while larger merchants dealing with higher order volumes (defi ned as those taking in over $25 million in online sales) reported using 7.3 such tools on average. Larger mer- chants also typically employ tools across all four of Cyber- Source’s categories, while smaller merchants typically focus on validation services and proprietary data/customer history.
International Orders.
T e ease of shopping online has encouraged customers to look beyond their own country’s borders for at ractive deals, but has also encouraged perpetrators of fraud. T e CyberSource survey states that the rate of fraud associated with interna- tional orders is twice as high as that of domestic orders. Again, there is some improvement: international fraud cases fell from 2008’s four percent to 2009’s two percent, but CyberSource
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34
April 2010
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