Chargeback Prevention through Good Customer Service

Preventing Chargebacks

Chargebacks are the bane of merchant's existence. Not only do they cause obvious financial losses, they also trigger logical and administrative headaches for merchants. Fortunately, they are often preventable by providing good customer service. A simple search for "chargeback" on twitter show a long list of unsatisfied customers ranting about the lackluster customer service they received. For example:

@xxxxxYour customer service is a joke! Some "do" company.. Will be issuing a chargeback on my cc for this horrible service. Mac herewecome

or

@xxxxx How do I get a hold of someone in support management? Will be doing a chargeback against you due to support issues.

These are but a few examples of customers looking for customer service, only to have the merchants fail their (realistic or not) expectations. Regardless how they show their dissatisfactions, ultimately the most inexpensive way for merchants to resolve these issues before they escalate into chargebacks.

Here are 5 suggestions we have from our personal and professional experiences.

1. Tell them who you are

One of the most prevalent reasons that customers initiate a chargeback is that, without mal intent, they simply do not know who you are, as you appear on their credit card statement. So contact your credit card processor to make sure your name appear as the customer would know you on the statement. If you use a "doing business as" (d/b/a) name, then make sure that's what appears on the customers' statements. 37 Signal was able to reduce 30% of their chargebacks by changing just what appears on the statement and adding a phone number for the customer to contact them.

2. Have enough people for support

No one likes to wait, wither it's a physical line or an invisible queue on the phone. Staff your customer support appropriately based on your needs. Phones should be manned, emails returned promptly.

3. Give refunds

By the time a customer calls you up to ask for a refund, whether it's your mistake or his, he is looking to get out of the situation. It's an opportunity for you to pacify the customer and potentially win over a critique by wowing him with your customer service. Think of the alternative, if you don't offer a refund, the next phone call the customer makes might be to initiate a chargeback. Even if you fight the chargeback and win the representment, you often will spend much more time and money, which could be easily avoidable in the first place.

4. No bait and switch

Advertisements can be misleading. When the customer feels that he is not getting what he paid for, he is going to complain. Sometimes they complain to you, sometimes they skip you and go directly to their credit card companies. Be as open as possible to criticisms from customers and steer your business practices accordingly.

5. Keep the customer informed

Whether you offer physical products or digital goods, make sure you continue to engage your customer and provide transparency. Let them know when their orders have been processed or have left your fulfillment center and en route to them.

5 Things We Learned About EMV.

How EMV is going to affect you.

EMV stands for Europay Mastercard Visa. It is a technology developed over many years by a consortium of credit companies seeking to create a secure authentication system for credit cards. While it's been widely used in Europe, it is currently being adapted for use in the United States.  EMV cards contain a chip much like an RFID. In Europe, the most common form of EMV is a chip & pin setup- since every card has a chip and to authenticate the user enters a personal pin number, much like how a debit card pin works.

Last week, we attended a NYPAY event listening to a panel of experts discussing EMV and how the implementation of EMV was going. The panel had a mixed of payment/EMV consultants, a representative from MasterCard, and 2 representatives from retailers, namely Ralph Lauren and Boscov Department Store. Here is what we learned.

1. EMV uncertainties lead to confusion.

Confused by EMV? You are not alone. Everyone on the panel (and audience) agreed on one thing- CONFUSION. Despite the 2015 EMV mandate, there is no clear standard that has been issued by the card associations. One of the panelist used the analogy of building a house before an impending deadline, but not being given a blueprint of what to build to describe the current EMV confusion. The confusing adds to already burdensome upgrade to EMV in terms of time and cost.

2. Biggest benefit of EMV is the liability shift.

When you accept an EMV card in your store and the card turns out to be a cloned card, the issuing bank takes the liability of that fraudulent transaction.  However, if a chip enabled card is presented at your store and your POS does not support chip enabled cards, and that card turns out to be a clone, then there would be no liability shift to the issuing bank, and you, the merchant, bear the burden of the the liability.  This liability shift does not apply to traditional magnetic stripe cards. So it really comes down to how widely the issuers will adopt EMV (issuing new cards to customers) and how much of your typical customer base will being usign chip enabled cards. Since there is a cost of upgrading to chip-enabled POS, it's cost/benefit analysis.  Does it outweigh the risk of liability for taking fraudulent chip-enabled cards?

The 2015 EMV mandate is not really a do-or-die mandate. If I understood the panelists correctly, the 2015 "mandate" is not an absolute requirement. It doesn't mean that you must only accept EMV cards or cease to accept credit card payments altogether. The mandate just means that there will be no liability shift if your POS system does not support chip-enabled cards.

3. Chip & Pin is for Europe, Chip & Signature for the US.

EMV can take the form of chip & pin or chip & signature. Europe and Asia have largely adopted chip & pin, but it looks like that US will go the route of chip and signature. Chip & pin is more secure than chip & signature, as we all know that our scribbles are usually accepted as our signature without questions asked.  It is unclear how this will affect the liability shifting and what is required of the merchants to make sure the signature is valid to benefit from liability shifting.

4. Expect fraud to shift online.

Merchants are fed up with fraud. Although it was a "payment" event, fraud was a central theme in the discussion. The representatives from retailers believe that the card associations are not doing enough to help the merchants to prevent fraud, while the other side touts EMV as its solution to fraud problems.

If history is any indication, we are likely to see mixed results. When the UK instituted EMV, card present (in person) transaction fraud declined.  According to a working paper published by the Federal Reserve Bank of Atlanta early last year, the adoption of chip & pin led to the reduction of domestic card-present fraud in the UK.  However, the Fed paper points out, the adoption of chip& pin caused "a migration to other types of fraud, namely card-not-present (CNP) fraud and cross-border counterfeit fraud." So with EMV adoption, we are likely to see fraud shifting from offline to online as well as more counterfeit cards used in the US at the POS.

5. Merchants are waiting until there is a clear roadmap.

A lot will come down to issuing banks and their decision to issue chip enabled cards.  Without a broad mandate from the government, those decisions will be based on each issuing bank's P & L analysis.  Merchants should also perform their P&L analysis to see if investing in an EMV upgrade is worth the liability shift.

Test Driving Shopify's Fraud Filter App

Subuno's Fraud Prevention App vs. Shopify's Fraud Filter

Subuno's Fraud Prevention App for Shopify

We launched our fraud prevention app for Shopify stores a few months ago. So far, the reception has been great and we have been able to save merchants a lot money.   Checkout our reviews or write one! Last week, Shopify released a free native fraud prevention app, Fraud Filter. We took Fraud Filter for a test drive over the weekend. Here are our thoughts on the new app and how it compares with our own.

Fraud Filter- Beautiful and Clean Designs

Our impression was that the Fraud Filter app exemplifies everything that is great about Shopify. Beautiful, clean and user friendly designs. Having it as a native app without having to leave the admin area makes the process feel more seamless. Fraud Filter allows merchants to automatically make decisions without having to review each individual order closely. For example, Fraud Filter allows merchants to flag or cancel orders based on AVS responses or based on shipping country, something that Shopify merchants will find very useful.

Good For Certain Situations

Overall, Fraud Filter is a huge improvement over the built-in risk assessment tools, however, it appears to be somewhat reactionary instead of predictive or proactive. For example, Fraud Filter can help you block repeat offenders in certain circumstances, flag orders based on AVS or block transactions based on shipping country.  But all these will only address less sophisticated forms of fraud.  For many Shopify merchants, this may be enough. Unfortunately, this will not help you screen orders where AVS is not available.  

Differences between Subuno's Fraud Prevention App and Fraud Filter

Here is a summary of what we found:

Type of Check	Subuno	Shopify
Auto-Cancel	x	x
AVS Mismatch	x	x
Shipping Country	x	x
Blacklists - order data (e.g. IP, email, phone, address...etc)	x	x
High Order Value	x	x
Velocity Checks	x
Integration with 3rd party fraud prevention/ order validation/blacklisting tools	x
IP Country Blocks	x
Fraud Score	x
Manual Review Tools	x
Filters Workflow Customization/Prioritization	x

What does this mean for merchants?

1. Should you use Shopify’s Fraud Filter App?
Absolutely. Especially since it's free! We believe that the more tools that merchants have at their disposal, the better chance they have to protect against fraud.

2. What if you are currently using Subuno's Fraud Prevention App?
We suggest you take the Fraud Filter app for a spin as well.  You will quickly see whether it fits your needs.  If the the fraudulent scenarios you see  can be detected by basic filters like AVS or Shipping country, then this app will provide a lot of value.

On the other hand, if you are facing more sophisticated fraudsters who also adapt instead of just going after the low hanging fruits, Subuno Fraud Prevention app is better suited to give you the power to create customized flow and fraud prevention strategy.  In addition, Subuno's app will provide additional values to you if you require something more advanced, such as tapping into additional industry leading 3rd party tools to provide some predictability as well as a way to validate orders that have been flagged for review. 

Ultimately, it really depends on the kind of fraud you are seeing and how you are planning for your fraud prevention strategy to evolve with your store.

Credit Card Numbers Fun

Since a new school year is upon us, I thought I'd share some interesting credit card facts so that you can get your math brain going.

Luhn formula

A credit card number must be from 13 to 16 digits long. The last digit of the number is also known as the “check digit”. This number is calculated from the Luhn formula (a.k.a Modulus 10) from the other numbers.

1. Start with card number
2. Drop the last number (check number)
3. Double every other number in the string
4. Sum all numbers
5. Multiply by 9
6. The last digit of the result is the check number

I know, that's a lot of steps right? Good thing we have the algorithm built-it to gateways and payment terminals!

Ready for more numbers?

Credit Card Validity

Here is another algorithm used to determine the validity of a credit card.

1. Take the credit card number
2. Double every other digit from right to left starting from the second to last number (meaning, exclude the check digit)
3. Sum up all the double digit numbers (i.e. 14 becomes 1+4) to make single digit numbers
4. Add all the numbers up, including the unaffected numbers from the original
5. If the result if divisible by 10, then the credit card number is valid

Try it at home with your credit card numbers!

Beyond Validation

As mentioned above, a credit card number has 13 to 16 digits.  The first 6 digits of the the number is the Issuer Identification Number (IIN) or sometimes called Bank Identification Number are the first 6 digits of the credit card number.  The IIN no only tells you what kind of credit card it is (e.g. Visa, MasterCard, etc.), it also contains issuing bank information.  With an American Express card, you can even tell whether the card is a business or a personal card.

Using IIN to Prevent Fraud

IIN can be used to prevent fraud.  For example, IIN from foreign countries deserve a closer look, especially in light of other transactional information, such as billing/shipping/ IP address.  Also, once you confirm a case of fraud, make sure to go back and look at similar transactions.  We recently came across a case where a merchant saw suspicious orders around the same time all with cards with the same IIN.

Are You Reviewing Too Many Orders?

"Are you manually reviewing over 20% of your incoming orders? "

That’s the question I ask whenever a merchant tells me that he doesn’t have a fraud problem. The answer, almost 100% of the time, is yes. 

"What percentage of those reviewed orders do you reject?"

If your answer is the same as the one I described above, then I apologize to be the bearer of bad news, but YOU have a fraud problem.

Manual Review: Unrecognized Consequence of Fraud

Many merchants associate fraud with fake credit cards and chargebacks. While those are obvious signs of fraud, too much manual review is an overlooked indicator that perhaps there is something simmering beneath the surface. If you are reviewing a large percentage of your orders, ask yourself why? If no fraud existed, then every order simply just needs to be processed and fulfilled, both can be done somewhat automatically. If you are not looking to catch potentially fraudulent transactions, what ARE you looking for?

Manual review has a big monetary impact. The time spent and resources required for manual review are often financial liabilities overlooked by merchants as costs of fraud. Many merchants spend a lot of time reviewing incoming orders. Sometimes they spend hours- often staffing the team with multiple people. According to the 2012 CyberSource Online Fraud survey, the biggest cost of dealing with fraud is the staffing cost for manual review. The largest team that I've ever heard has about 50 members. 

Adding Up the costs 

For small merchants, if a merchant is paying a customer service agent 2 hours a day to review orders, even at minimum wage, the merchant must pay close to $500/month*. This is money taken from profit, away from operating costs or away from your marketing spending.

Save Time, Save Money

Since time IS money, the sooner you recognize that too much time is going into preventing fraud, the earlier you can become armed with the proper mentality and approach to save that money. Review your order screening process with critical eyes, look for patterns. Are there things you always check when you review? When you train your staff, what do you tell them to look for? With those answers, try to see if you can automate part of the process to reduce the number of orders slated for review. For example:

• If you always reject orders from foreign countries, set your system so that it automatically rejects orders coming from foreign IP addresses. 

                                                                        or 

• If you always accept orders under $30, don't spare even a glance, have your system automatically route that to processing/fulfillment. 

Using tools to automatically accept good orders and reject obvious bad orders will save you time so that you can focus on those orders needing more detailed reviews.