Now that credit cards are common around the world, the question arises: has consumer protection gone too far?
Many people make credit card purchases every day on pocket-sized devices with just a single tap of a button. Smartphones are owned now by billions of people around the world, so the ecommerce market has expanded rapidly and will only get bigger.
Moving forward, understanding historical and contemporary consumer fears about credit card security will help online retailers make their customers feel safer when making purchases, enabling them to grow sales.
Additionally, online retailers need to understand how the right ecommerce platform can fight back against excessive consumer protections, which were designed for the pre-digital world, from draining time and money from their business. With a multi-pronged approach to preventing and fighting chargebacks, ecommerce businesses can scale their sales safely, without compromising their customers’ security.
Let’s look at the rise of credit cards in the retail sector to appreciate for how today’s business-facing ecommerce platforms meet all the security concerns shared by both consumers and merchants, allowing online businesses to deliver retail services that are secure and grow steadily.
Historical Reasons for Chargebacks
Initially, both businesses and the general public benefitted from strong consumer protections when paying with credit. Customers wouldn’t be likely to pay with credit unless they were confident that they wouldn’t be helpless if a merchant failed to deliver the level of service promised.
If a dispute arose between the customer and the merchant, a third-party would investigate their complaint, rather than just the business itself, which already possessed their money. This system was put into place after the Fair Credit Billing Act of 1974.
Consumers were very hesitant to even own bank-type credit cards. Before payment with credit was widely practiced, the fear of stolen credit cards and fraud — with cardholders being left stuck with the bills — was real and understandable.
Chargebacks were a safety net designed to make consumers feel comfortable paying with credit. It worked brilliantly: whereas only one-sixth of households in America possessed a credit card in 1965, by 1998 they were owned by two-thirds of Americans.
In the first quarter of 2019 there were as many as 432.8 million credit card accounts in the US, an increase of nearly 20 million from the same period in 2018.
Chargebacks bolstered consumer confidence in credit cards to the benefit of both consumers and merchants, helping this method of payment to become the widespread practice it is today.
Excessive Consumer Power Threatens Businesses
In many ways, the measures taken to reassure consumers when paying with credit have swung too far, often at the expense of online retailers.
Now, a disgruntled consumer can bypass the merchant and take their complaint straight to the bank, demanding a refund. In the case of outright fraud by a merchant, of course a customer is correct to go straight to the bank — but fraud committed by businesses is very rare, and chargebacks against businesses are not!
Chargebacks and fraud cost companies $80 billion in lost revenue annually; this is a major problem. On the other hand, the average order on credit cards is 21% higher than on debit cards. Businesses are right to want to encourage their customers to pay with credit cards, meaning they must give customers security and comfort when paying by this method.
Not every chargeback is premeditated fraud committed by cybercriminals. In practice, misunderstandings or disputes may be called a “chargeback,” and can be resolved amicably enough, but they are still a needless drain on the merchant’s time and budget.
These innocent types of chargebacks don’t have to harm online retailers when they use today’s enterprise-level, business-facing ecommerce platforms.
Chargeback Protection 101
Sometimes the merchant is not aware that there has been a chargeback filed against them until it’s too late. Important features in industry-leading payment and billing platforms such as LimeLight Alerts let the merchant know in real-time that a chargeback has been launched against them, and lets them avert its harmful impact by reversing the charge that instant.
This means that the credit card issuer never notifies the merchant’s credit card processor, and the dispute gets dropped. The merchant avoids paying credit card processor fees, having funds withdrawn from their bank account to be held in escrow by the processor, and doesn’t have their time needlessly wasted fighting chargebacks.
An ecommerce business can keep their Monthly-Income Debt Securities healthy by making sure their books aren’t dragged down by chargebacks. Chargebacks Automated Alerts entitles companies to the most coverage in the industry, spanning a global network of all major card-issuing banks around the world.
Representment Specialists Fight Chargebacks
Fighting chargebacks can be time-consuming since the onus is often on the business to disprove the consumer’s arguments.
The perception that fighting chargebacks is draining and futile may discourage businesses from pursuing the fight, but actually many are winnable!
The best ecommerce platforms have a win-rate of about 80%. This is on top of the chargebacks that have been prevented in the first place.
In addition to having dedicated representments specialists, leading ecommerce platforms augment the protection they offer further by partnering with industry’s trusted chargeback services, such as Ethoca and Verifi.
Ecommerce businesses can have their entire account set up and managed, while having a devoted chargeback expert on their side that already knows their business inside and out will dramatically increase their win-rate.
Think of all the ways your company can grow when this much extra spare time is freed up.
To ensure specialists have all the tools at their disposal to win chargeback disputes, payment and billing platforms can offer a fully integrated partnership with services like Chargebacks911, which directly pulls all the relevant info right from your business account.
The surest way for a business to reduce operational costs and avoid paying penalties and fees is to have trained specialists combating chargebacks on their behalf, while also utilizing data to prevent chargebacks from ever occurring.
Pre-emptively Prevent Chargebacks with Leveraged Data
Chargebacks can be reduced in the first place by as much as 20% by using a multi-layered approach to security. All the data leveraged across the entire platform is constantly refined and updated, then used to screen for suspicious transactions so they can be declined in advance.
Using millions of data points across the database to weed out customers who end up being bad actors for businesses prevents fraudulent transactions from getting processed. The more sales there are, the more intelligence is gathered, refining and improving the screening process even further so it can pre-emptively prevent chargebacks more effectively.
As your business grows, the data underlying your automated chargeback protection actually improves. Without chargebacks on the books, ecommerce entrepreneurs will enjoy having nice and healthy MIDS.
Flagging chargebacks allows merchants the ability to cancel a subscription, or blacklist a particular customer. LimeLight’s Transaction Select service can even block customers at the point of purchase if they have been found to have a high probability for a chargeback on a future purchase.
LimeLight offers analytics dashboards complete with order analysis and affiliate analysis, which will present vital statistics about chargebacks so businesses understand the macro effect chargebacks are having on every aspect of their company.
Businesses need to be able to process sales with confidence. Just like consumers deserve assurances about the security of online payments, merchants also need to know that they can process payments reliably.
Automated Versus Fully-Managed Chargeback Services
In these days of advanced Artificial Intelligence, one might wonder: are automated chargeback protection services better? Not necessarily.
The highest win-rate percentage comes from a well-managed service benefitting from trained chargeback professionals giving customized attention.
LimeLight combines its toolkit with the specialists at Chargebacks 911 and the alert providers at Ethoca and Verifi to give businesses the benefit of both approaches.
Additionally, LimeLight offers a better negotiated rate than merchants would otherwise get if they sought each service independently.
The tandem of automated alerts and specialist support from a real persongives businesses the best odds of winning a chargeback, and saves valuable time.
PCI Compliant Fraud/Transaction Processing
Sophisticated tools which authenticate online transactions and reduce fraud are also effective in reducing chargebacks. The best platforms give a great deal of flexibility to every business, so they meet their specific needs by customizing risk levels by campaign, product, or payment gateway.
An important feature called 3D Verify can be built directly into an ecommerce business’s checkout process. This feature authenticates cardholders via an onsite display page provided by the card issuer.
This robust security measure can be easily integrated with Payment Gateways to thicken fraud protection by adding an important layer of authentication. It also works in less than three seconds, so consumers have a pain-free purchasing experience.
LimeLight is partnered with Kount, the industry leader in detecting and managing fraud. Kount has powerful tools to reduce mobile fraud and chargebacks, such as:
- Device fingerprinting
- Supervised and unsupervised machine learning
- A robust policy and rules engine
- Business intelligence tools
- A web-based case-management and investigation system
Whether in the form of mobile apps, mobile wallets or any other form of modern payment, Kount manages to keep businesses protected. Kount shifts the liability for chargebacks due to fraud from the merchant to the card issuer.
Billing Optimization Reduces Chargebacks
Businesses that offer payment flexibility enjoy higher rates of customer satisfaction. Online merchants need the ability to allow their customers to pay in whatever way is most comfortable and natural for them.
Therefore, having an ecommerce platform that can manage subscription-based offers, straight or sales, free trials, and every other payment option is essential.
Having the ability to keep payment information like credit card numbers up to date before a rebill cycle is another important way ecommerce merchants can keep the sales rolling along, helping to ensure customer satisfaction. Businesses can extend customer lifecycles in less time by automating this process.
A platform with powerful analytics can reveal what customers really need and want, and then deliver them.
Address Validation is another vital tool to reduce chargebacks, especially with today’s consumers expecting the convenience of same-day or one-day shipping. Shipping delays can result in cancelled orders or chargebacks, as well as consumer complaints.
Ecommerce platforms with the technology to keep credit card payment and shipping addresses accurate and up to date help parcels arrive quickly and cost-effectively.
Everybody wins when merchants can sit back and enjoy reliable sales without having to manually update customer info, while at the same time their customers benefit from hassle-free delivery on products they regularly consume, often at a discounted price.
Today’s retail environment allows for sales opportunities that would have been impossible to imagine years ago.
Ecommerce made it possible for people in any country to subscribe to newspapers from around the world and read them without needing them physically delivered. Similarly, the advances in ecommerce have made it possible for companies specializing in subscription-sales to deliver products customers use in weekly or monthly intervals so people are spared the hassle of buying them over and over again.
Companies now have access to an international market, so the potential for growth is virtually unlimited. However, such incredible new opportunity invites threats, which is why it’s essential for today’s ecommerce businesses to maximize the benefits of the digital economy while minimizing its risks, in a way that saves them time and money.
A one-stop shop business-facing platform combining its own specialists with other industry leaders is the one requirement all online retailers need. Our modern world may be very technologically advanced, but companies still need to contend with the pre-digital era’s legacy of chargeback protection that was biased in favor of consumers.
Chargebacks and fraud don’t have to drain ecommerce businesses of time and money, so long as they are protected by an enterprise-level platform combining the most modern automation and highly-trained specialists to reduce the risks, leaving entrepreneurs free to focus on growing their business.