How Fraud and Chargeback Prevention Works

Merchants may face penalties if they exceed an agreed-upon chargeback limit when using Visa and MasterCard chargeback monitoring systems.

"If a merchant meets or exceeds specified chargeback thresholds, its acquirer is notified in writing," according to the "Chargeback Management Guidelines for Visa Merchants."

The first notification of an unusually high number of chargebacks for a specific merchant is a warning. If actions are not taken within a reasonable time frame to reduce excessive merchant chargeback rates, Visa may levy financial penalties on acquirers who fail to reduce excessive merchant chargeback rates."

To avoid a slew of penalties and fines, every merchant should avoid chargebacks. And he'd better do it before the time comes for conflict resolution.

The best chargeback prevention solutions

To be safe, merchants should enlist the help of a reputable online payment gateway service provider. We recommend choosing one that has an advanced fraud and chargeback prevention system or hiring a team of in-house professionals to deal with fraud and chargeback risks within the company. It is a massive amount of work that one cannot afford to ignore.

While hiring an in-house team is a time-consuming and costly option, enlisting the assistance of a reputable PSP can be a much more convenient option (and it will keep your pockets full as long as you shop around and choose the one with the best rates and offers).

Regardless of which option you choose, it's in your best interest to learn how to work around fraud and chargeback prevention measures. And in this article, we will describe how a typical system aimed at risk elimination looks.

How does fraud and chargeback prevention work?

The fundamental principle underlying fraud and chargeback prevention is the assignment of a "score" to each customer. The client receives one point for each action or limits exceeded (or more depending on the activity). The team specializing in chargebacks and fraud calculates the score to determine how safe it is to allow a specific customer to make a purchase or how likely he is to request a chargeback later. The higher the score, the greater the likelihood of fraud.

The acceptable score for classifying a potential customer as "safe" varies by business. As a result, high-risk merchants who must deal with chargebacks on a regular basis should definitely lower the "acceptable score" level to increase their safety. Otherwise, chargebacks will be flooded in.

Technically, there is a set of parameters that PSPs and merchants should incorporate into the fraud and chargeback prevention system. Among these parameters are, but are not limited to:

1. Card level restrictions

It is critical to impose these restrictions in order to prevent any fraudulent activity. As a result, you can limit the number of attempts to pay with a single card per day. You can also set a limit on the number of purchases made with the same card per day, and so on.

These simple restrictions can assist you in identifying potential chargebacks and eliminating the risk before the problem manifests itself.

2. Email level restrictions

Adding email level restrictions is another way to prevent fraudulent activity. These include a weekly purchase limit, a weekly limit on the number of attempts to pay with a single card under different emails, and so on.

When paying for goods and services, people who use separate emails but a single card are more likely to be involved in some kind of fraudulent activity than those who only use one email linked to the credit card.

3. IP level restrictions

It is now possible to monitor a specific user's IP address, thanks to advances in technology that we all enjoy these days. As a result, the merchant can determine where a user is purchasing from. Furthermore, he can determine whether or not this IP address is classified as dangerous or blacklisted.

Among the restrictions that a merchant can impose here are IP blacklists, forbidden IP, and BIN countries, among others. The list is much longer, but these are the ones to consider first.

These restrictions should be woven into every smart merchant's fraud and chargeback prevention system. But there's more to it than that.

Companies have recently introduced us to cutting-edge technologies that enable real-time detection of suspicious activity from an IP address.

These technologies are simple to integrate into one's existing fraud and chargeback prevention system's restrictions and limitations.

Furthermore, learning about new services offered by these two companies is worthwhile. Their services can save you the trouble of dealing with chargebacks and potential fraud.