Minimizing chargebacks by detecting fraudulent orders

Selling your products online gives you access to a much larger customer base, increasing both the amount of orders you receive and the awareness of your brand . While selling online is a great opportunity for your business, it also increases the risk that orders you receive are purchased fraudulently without a cardholder's permission.  

To give you an example:

  • A fraudster orders products from your online store using an unauthorized or stolen credit card.
  • You then ship the order to the fraudster.
  • The cardholder later disputes the transaction with their credit card issuer, forcing you to refund the purchase amount.
  • You’ve now lost the merchandise to a fraudster and the payment to the cardholder.

In order to limit situations like this, it is vital that you learn how to detect fraudulent transactions and refund them. This article provides strategies and tips to help you.

Techniques to detect fraudulent orders

This section contains:

  1. Understanding the cost of implementing a fraud prevention strategy
  2. Investigating orders
  3. Managing eCom orders, shipping and product content
  4. Managing customer communications
  5. Managing payment providers

Understanding the cost of implementing a fraud prevention strategy

As you begin implementing a strategy to identify fraudulent orders and refund them, it is important to remember that there will be a tradeoff between maximizing your revenue and minimizing risk. 

For example: In August, your costs due to fraudulent orders is $500. By the end of September the cost of limiting fraud by following your new fraud detection strategy increases to $1000.

In this example, the cost of fraud prevention was higher than the actual cost of fraudulent orders. This is because any fraud prevention strategies you implement, including the ones outlined in this article, may impact your business in the following ways:

  1. You may inadvertently refund genuine orders, since by nature, fraudulent orders are difficult to detect. This can cause a  genuine customer to be less likely to buy again.
  2. Your customers  may have a reduced interest  in purchasing from your online store due to the strategies outlined in Managing eCom orders, shipping and product content.

Therefore, it is important to adjust your fraud prevention strategies on a monthly or quarterly basis.

Investigating orders

Depending on your store, you can check for certain characteristics that may help you identify a fraudulent order:

  1. Check the number of products in the order. Unusually large or high value orders could be fraudulent.
  2. Check the type of products in the order. Depending on your store, you might be wary of orders that are uncommonly purchased together.
  3. Check the billing address of the order. If the billing address is not a real location or not a residential location, it may be a fraudulent order.
  4. Check to make sure you're not receiving more orders than you're used to in a given timeframe. A fraudster may try placing multiple orders at the same time.

Managing eCom orders, shipping and product content

You can implement the following strategies in your online store to help identify fraud and limit chargebacks.

  1. Investigate orders that have different billing and shipping addresses. It is a common practice for a fraudster to use the billing address of the card holder and a new shipping address to receive the order.
  2. Delay the shipment of orders by 24-48 hours. This can give cardholders time to identify transactions that are fraudulent and contact you before you ship them.
  3. If you use manual shipping in eCom, increase the price of one- and two-day shipping to be twice or three times it's true value. Fraudsters do not care about the added extra price, so this could be used as an indicator of fraud.
  4. Describe the item you’re selling accurately because if a customer receives an item they didn't expect, they could call their credit card issuer to dispute the transaction.

Managing customer communications

How you communicate with your customers can improve your relationship with them, and as a result limit chargebacks.  If your customers know your online store, you increase the chance they will contact you when they see suspicious activity on their card as opposed to their card issuer. Then you’ll be able hopefully resolve the issue without the the customer having to resort to filing  a chargeback.

  1. Encourage your customers to contact you if they have any questions about shipping delivery or sales. Read Creating customer emails to understand how to manage customer notification emails.
  2. Publish your return and shipping policy clearly and include in correspondences and invoices. Read Modifying text pages to learn how to edit your shipping and return policy pages.

Add a live chat app in your shop. Visit our app store in your shop and search Live chat. For more information on our app store, read our help article titled Lightspeed eCom App Store.

Managing payment providers

The following two strategies can be viewed and managed in your payment provider's version of a web portal. Consult your payment provider's support if you have any questions.

  1. Obtain positive AVS and CVV matches before shipping.
  2. Ensure you have a phone number or URL in your soft descriptor. A soft descriptor will appear on bills and statements and ensures transparency between you and your customers, allowing customers to call you and resolve the issue rather than disputing the transaction and causing a chargeback.
    • For example: 444-123- 5678 NM $57.00 
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