Chargeback was created to protect consumers from scams and wrongful charges. However, the feature has become a problem for e-commerce.
A chargeback, or reversal, occurs when a charge is disputed by the cardholder and the amount must be returned. This mechanism was created to protect consumers from scams and inappropriate charges. However, the feature has become a headache for ecommerce who, by law, are required to bear the damage.
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The operation aims to guarantee consumers’ rights against the risk of cloned cards or defective products. However, on many occasions the request is made improperly, causing various inconveniences to the shopkeepers, especially when the product has already been shipped.
“Chargeback is a problem that affects all e-commerce retailers, but it is an even greater inconvenience for those starting out in this field, as they are people who often do not even know that the chargeback damage affects the virtual store “, says Bernardo Lustosa, CEO of ClearSale.
5 common mistakes on the chargeback guarantee model
According to Rodrigo de Castro Schiavinato, executive director of partnerships and innovation and partner at Protiviti, some e-commerce companies prefer the chargeback refund fraud prevention model due to cost management and predictability, as the provider of the solution bears the loss, charging only a percentage of approved trades.
Some retailers, however, still make the mistake of looking at the model with suspicion. To help retailers, the executive pointed out 5 common mistakes about the chargeback guarantee model.
1. The chargeback guarantee model is only a transfer of liability
Schiavinato explains that this is not the case. Unlike traditional models, the solution provider necessarily receives the data from the generated chargebacks and is able to train its AI algorithm in a supervised way.
In this case, accuracy is essential to the health of the supplier, and he won’t survive assuming the losses of fraudulent purchases he approved by mistake. Likewise, the partnership doesn’t hold up if the system starts rejecting too many sales.
2. The chargeback guarantee model is just a form of insurance against fraud
The statement is inaccurate as insurance against potential risks is taken out while fraud is a certainty. Thus, creating a fraud insurance is unsustainable, as it is not a matter of probability, but a recurring situation. Therefore, it is important to see the chargeback guarantee as a model that works both ways: increase approvals and eliminate the value of the chargeback.
According to the executive, in addition to the clear benefit of cost predictability and revenue growth, the chargeback guarantee is also evidence of the vendor’s and solution’s confidence in their mathematical models.
“We see numerous retailers experiencing chargeback explosions for reasons such as changing fraudster behavior, changing internal structure, or lack of outdated fraud monitoring and indicators, which, in a guaranteed chargeback model, this simply would not happen.” . he says.
3. The chargeback guarantee model is more risk averse than other anti-fraud solutions
For Schiavinato the challenge is to find the balance. «And that means, in practice, defining the path to bring the approval rates to the limit. And, for the provider to be stimulated in this concept, the right thing is that he is remunerated only for the approved transactions », he explains.
For the model to work, the solution provider needs to be able to block more fraud while approving more legitimate claims. “If the provider offers a guaranteed chargeback model with fixed revenue per transaction or charging a percentage of the total volume of transactions, regardless of whether they are approved or rejected, it is important to be wary of the results, because in this model there is no interest in maximize sales consents”, he underlines.
4. The chargeback guarantee model offers value only to merchants with high-risk segments
According to the executive, fraudsters have the ability to find and maximize vulnerabilities very quickly. Thus, “failure to catch fraudulent activity can lead to tens of thousands of reais in chargebacks within hours.”
Schiavinato explains that while some vendors distinguish between “safe” and “risky” segments, experience shows that no product category, payment method, or shipping location is safe:
“Some sophisticated scammers exploit the concept of ‘safe segments’, combining innocuous items like socks with more expensive products like high-value gift cards to add a veneer of respectability to their orders and maximize success,” he points out.
5. The chargeback guarantee model is no different from other fraud prevention solutions with advanced machine learning engines
While machine learning is a powerful anti-fraud tool, the executive says there’s no substitute for human experience. “Some anti-fraud solution providers boast that they depend solely on machines. However, a team of specialists behind these algorithms is needed to validate some behaviors,” he explains.
The main difference between machine learning and guaranteed chargeback is that they use supervised models, powered by data from billions of transactions and thousands of customers. “That is, AI doesn’t just look for behavioral patterns and anomalies, but rather learns from its own mistakes and successes.”
The executive concludes by stating that “chargeback models bring greater comfort to the retailer in the predictability of costs, the elimination of chargeback overflow risks and ultimately, the increase of online revenues”.
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Source: Terra
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