Prevent chargebacks strategically

Ten-second summary: Prevent chargebacks (both criminal and friendly)  with cross-functional coordination. To maximize profits, your fraud team should work with:

• The website design team to rationalize payment form fields by substituting user-entered information with insights you already have from machine learning.
• The customer service team to efficiently prevent and dispute friendly fraud.

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Thinking strategically about preventing chargebacks

Preventing e-commerce chargebacks — due to malicious purchases with stolen credit cards or ‘friendly-fraud’ from disgruntled customers —  is a challenge that requires strategic coordination.

By working cross-functionally, your fraud team can:

• Maximize your bottom line with an effective checkout form (with the website design teams)
• Minimize the impact of friendly fraud (with the customer service team).

Maximize your bottom line with a balanced checkout form

Frictionless checkout is critical. An estimated 18% of customers who abandon carts do so because of checkout page complexity. ((The Baymard Institute’s E-Commerce Checkout Usability Report (June 2013) and blog has extensive research on ecommerce desktop and mobile best practices, like this post on streamlining the checkout process.)) Too simple a payment form, however, hinders chargeback prevention.

So how should your web design and fraud teams simplify checkout?

Rationalize fields. Some payment fields can be inferred from others and removed without impacting chargeback fraud prevention. For example, the customer’s billing address and zip code are critical to assessing chargeback risk, but billing city & state can be inferred from zip code. Similarly, credit card issuer maps to credit card number.

Apple’s payment form has low friction

Simplify field entry.  Let shoppers input information as directly as possible. Expiration date fields     and    provide the same data to the fraud team, but the latter requires converting month number to name. Also, be mindful of the order of text fields and drop-down boxes, to reduce a customer’s switching between keyboard and mouse.

This payment form won’t prevent chargebacks — it’ll give you carpel tunnel!

Turbocharge chargeback prevention with data. Some fields are bottlenecks to conversion, but incrementally useful for fighting fraud. Remove the field, but keep chargebacks low by using signals derived from the customer themselves. Sift Science’s machine learning technology, for example, can surface subtle fraud signals based on a user’s behavioral, network and identity traits. ((Conventional rules-based fraud detection assumes the past is like the present, which isn’t the case with fraudsters. We’ll write more on this later, but data will only boost your bottom line if you have the right tools!))

Every business is different, so run A/B tests to optimize your unique conversion-information trade offs. Event tracking in Google Analytics can elucidate form abandonment issues on a field-by-field basis. (See footnote for info & alternatives). ((Be sure to use _trackPageview and be sure to set up a separate profile. For more about event tracking, see here. There are also jquery-based methods, simpler less granular tracking, and standalone software options.))

Minimize the impact of friendly fraud

Friendly fraud accounts for 23% of revenue lost to chargebacks, but this does not include the 57% of all fraud losses from credits issued. ((Cybersource (2013) via the Fraud Practice)) Friendly fraud is exasperating but inevitable since it’s easy for consumers to contest charges.

• The good: Unlike a cancelled check, you can dispute chargebacks.
• The bad: Contesting a chargeback is as fun as filing taxes.
• The ugly:  While 80% of taxpayers qualify for a refund, merchants win back only 43% of chargeback revenue. ((Chargeback win rate is from Cybersource (2013). Tax refund data is from NPR.))

Collaborate with the customer service team. Your fraud team must be efficient and thorough in chargeback disputes. When a customer disputes a transaction, the onus is on you to prove that you acted correctly. ((The Fair Credit Billing Act protects consumers (and their credit scores) form billing errors and requires that credit card companies address disputes in a certain amount of time. Effective at protecting consumers from potential abuse by credit card companies, an unfortunate side effect is that chargebacks become an easy and effective way for disgruntled ecommerce shoppers to express discontent.))

• Record of all customer interactions (especially related to returns or replacements) and make these easy for the fraud team to access.
• Be clear about billing timing and method, return procedures (how and to what address), and ways to contact the customer service team.
• Choose a billing name that is easy to recognize (or find on the internet) on credit card statements, especially if customers know your product rather than your business name. (37signals cut chargebacks 30% by changing theirs.) ((37signals, maker of SaaS software like Highrise, gives details in this blog post. Spoiler alert: They list a URL where customers can find information to get around character restrictions.))
• Provide easy access to commonly requested information, such as tracking number, date of transaction/shipping/delivery, delivery address, item purchased, and purchaser name.

Fraud losses — whether malicious criminals or friendly — and are a challenge. With strategic collaboration, data, and machine learning, you can overcome them and boost your bottom line.

At Sift Science, we believe all merchants should have access to the same class of technology used by Google and Amazon to prevent e-commerce fraud at a reasonable price. Get started with Sift’s simple, one-hour integration!

Any other questions? We’d love to hear from you! Ping us at info@siftscience.com.