Slash Your Chargebacks

In a tightening economy, back-end fulfillment costs such as chargebacks—dispute mechanisms credit card customers use to reverse transactions—comprise a line item worth scrutinizing.

Depending on the volume of chargebacks a cataloger is hit with in a set time period, fees (which are levied on a merchant) can run from $20 up to a whopping $150 per chargeback.

“To say the least, chargebacks can get very expensive for merchants,” says Scott Martin, chief operating officer of EPX, a New Castle, DE-based electronic payment processor.

Here’s how catalogers can reduce chargebacks generated from either customer disputes or outright fraud.

Tips to Reduce Customer Disputes

“Try not to look at chargebacks as rejected transactions but as customer comments,” says Nick Baxter, president of First of Omaha Merchant Processing, an Omaha, NE-based payment processor. “[They] tell you that your customers weren’t happy with some portion of their interaction with your company—whether it was the merchandise, shipping, billing or something else.”

Steps catalogers can to take to help reduce their chargebacks from dissatisfied customers include the following:

*Manage customer expectations, including when customers can expect the products to be shipped to them, the condition in which the items should arrive, and any other terms or conditions, says Martin.

*Make your purchase descriptors clear

and unambiguous. Customers looking at the purchase descriptors on their monthly credit card statements should be able to easily recognize your catalog company’s name, says Baxter. Remember, it may have been up to 30 days since the customer made the purchase, and he or she may not even recall making it. Any help you can offer to jar memories may reduce your chargebacks.

*Add to your descriptors a toll-free number for customers who have questions. “Then staff that customer service line accordingly,” says Baxter. “We’ve found that many customers who pursue a chargeback say they first tried to call the merchant to resolve the issue, but couldn’t get through on their phone lines.”

Customers then hang up, says Baxter, and call the next 800 number they see on their credit card statements—that for their cards’ issuing banks, whose customer service reps picked up their phones right away.

“So it was actually easier for the customer to file a chargeback claim than to talk with the merchant’s customer service department to resolve the issue,” he says.

Also try including your URL or e-mail address on the descriptors.

Baxter says there are no statistics on how much these small steps can reduce a merchant’s chargeback ratios. But by his own estimates, merchants who implement these tactics cut their chargeback ratios by 50 to 60 percent.

*Set and maintain customer-service guidelines. To be sure, customers who were dissatisfied with the product or service they received are more likely to file for a chargeback, says Baxter. That’s why it makes sense to establish clearly stated customer-service guidelines—and then make those guidelines accessible and clearly understood by all of your customer service reps (CSRs).

Martin agrees, adding that merchants should periodically monitor their call centers to ensure that CSRs aren’t using high-pressure upsell and cross-sell tactics that could come back to haunt them in the form of chargebacks.

*Issue refunds or credits quickly. “Especially in today’s day and age, customers are looking at their statements online and want to see their refunds credited right away,” says Martin.

*Look carefully at your returns policy. It may actually be more cost effective to have a generous returns policy. “Down the road, it may save you chargeback fees generated from dissatisfied customers,” Martin notes.

*Send e-mail confirmations of orders or refunds whenever possible, says Martin. They’re another form of verification and customer service.

Tips to Reduce Fraud

Worldwide Internet payment fraud due to stolen credit cards, identity theft and other means is expected to reach $15.5 billion in 2005, according to Meridien Research, Newton, MA. Closer to home, officials from the U.S. Secret Service say victim losses from credit card fraud in the United States reached $300 million in 2000, up from $230 million in 1999.

Merchants can reduce their chargeback rates due to customer fraud simply by carefully monitoring their sales and adopting some of the following selling strategies, says Baxter.

*Use an address verification service. Such database services verify a cardholder’s billing address to the address he or she gives the CSR at the time of the sale. The service tells the CSR if there’s a full, partial or no match to the address.

*Look for red flags. They’ll be different for every cataloger, but the following are some transactions that should spark a double-take:

-Single orders that are unusually large. “Fraudulent credit card orders are usually three to four times larger than a cataloger’s average order size,” says Baxter. “Also, if you get, say, a $10,000 order on the last day of a very slow sales month, that should be a red flag.”

-Chargeback customers who try to order again. If you’ve already been hit with a chargeback from a customer, be cautious about sending product to that person again, Baxter continues. “Keep track of the names and mailing addresses of chargeback customers,” he says.

-The type of product ordered is unusual. If, for example, you sell highly-customized product, and you get a new customer who wants an off-the-shelf product, that may be a red flag.

-You don’t know where this person found your catalog. If you get an order from a state in which you don’t drop catalogs, or you have no record of having mailed a book to this person, or the area code the customer gave you doesn’t match the ZIP code for the billing address—these are all warnings, notes Baxter.

“Some of our catalog clients will ship product to first-time customers to their credit card billing address only and nowhere else,” he continues.

*Do your due diligence. Load a database with the addresses for all prisons in the country and the P.O. box providers, advises Baxter.

“You want to know if you’re shipping product to these addresses—or to a loading dock or to what you think is a building suite number, but is really a post office box somewhere,” Baxter says.

The online white or yellow page directories often are a low-cost way to verify addresses, he continues. Catalog CSRs should be trained to go online and check the free electronic directories, such as whitepages.com, superpages.com ultimatepages.com, anywho.com and switchboard.com.

*Watch for employee fraud. Rogue employees who steal whole databases of customer credit card information are actually more of a threat to merchants than individual credit card thieves getting away with one fraudulent order, says Baxter.

Martin agrees, adding, “As a cataloger, you are, in essence, a repository for your customers’ credit card information. Guard it well.”

*Consider investing in technology to help detect fraud. For example, CyberSource Corp. offers to

e-merchants a fraud-detection scoring system based on behavorial and sales-pattern analysis. This means a customer order placed at 1 a.m. using a P.O. box as a shipping address would get a “high probability of fraud” score.

While such solutions can help reduce the incidence of fraudulent credit card orders, carefully calculate the cost-to-benefit ratios.

“If all or most of your orders are taken remotely—that is, in card-not-present environments such as e-commerce pure-plays—such technologies can be critical tools against fraud and their resulting chargebacks,” says Martin.

In short, stay vigilant. “When you spot an upward trend in customer chargebacks,” says Martin, “act quickly and aggressively to address that trend.”

*More tips on reducing chargebacks are available on the Web site of Cardservice International, www.cardservice.com/merchant/chgeback.htm.

-First of Omaha: a merchant processing company, (800) 228-2443, www.foomp.com.

-EPX: electronic payment processing company, (302) 326-0700, www.epx.com.

-Merchant911.org, a non-profit organization comprised of merchants sharing information on how to reduce chargebacks.

-CardCops.com, a fraud investigation service for Web retailers.

-CyberSource Corp., www.cyber source.com, a provider of risk management and electronic payment solutions for multi-channel marketers.