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Chargebacks can turn massive profits into crushing losses in the time it takes to clarify a chargeback dispute. Don Bush, VP of Marketing at Kount is on hand to offer his tips to spot retailers fraudulent transactions and avoid chargeback disputes.

This Christmas saw a record amount of online sales, over $22.7 billion was spent globally during the festive period and as we all know, but now is the season when chargebacks will begin to occur.

LogoAccording to a recent industry insights from Kount, Fraud causes $100 billion in losses annually. Chargebacks account for most of that $100 billion loss. To put that in to perspective, $100 billion is larger than the GDPs of more than 100 countries around the world. According to a recent BRC survey, fraud is expected “to pose the single most significant threat to retail businesses over the next two years.” Showing us that this is a global problem. Levels of fraud increased by 12% in 2013-14, with 135,814 incidents reported during the year accounting for a staggering 37% of the total £603m cost of retail crime.

This fraud then results in the bane of merchants all around the world; chargebacks. Chargebacks can turn profits into loss in the space of 90, 60 or even 30 days.

A chargeback occurs when an issuing bank receives a complaint from cardholders regarding fraudulent transactions on their statement. This begins a chain reaction of an investigation leading to a customer refund and finally a chargeback to the merchant. The merchant is charged the full value of the transaction, losses the merchandise, and is charged an additional fee that can be up to $100.00 per transaction. Even if the fraud is proven to be false, a merchant may still be charged the processing fees and of course, the product is almost always lost.

This can result in an extremely profitable festive period becoming terminally costly for a merchant.

Don Bush
Don Bush

There are also long term effects for the merchant. Payment card issuing banks know they are at an advantage in this situation so they don’t only charge fines, they may increase their fees if they choose to label a merchant as prone to chargebacks.

At Kount we know how disastrous chargebacks can be to a merchant as well as how much time, manpower and finances can be involved in fighting them.

The number one cause of chargebacks is fraud. So how can you tell that you have a fraud problem? To help you figure that out, here are Kount’s Key Indicators that an online retailer is being targeted by fraudsters:

  1. A Chargeback Rate Above 0.5%

There is no “magic” chargeback rate that is necessarily right for every single business. The acceptable rate for chargebacks will depend on your type of business: i.e., digital goods, apparel, etc. However, a charge back rate that consistently exceeds 0.5% often indicates a fraud problem.

  1. A Decline Rate Higher Than 1%

Online businesses reject an average of 2.8% of all U.S. transactions. Yet the actual fraud rate is 0.9%-1.3%. That’s a lot of good orders getting thrown out. If your fraud screening process cannot distinguish between good and bad orders with certainty—and your decline rate is above 1%—you’re probably turning away profitable sales.

  1. Manual Reviews Exceed 10% of Orders

When chargebacks increase, many merchants fight back by increasing manual reviews, even though they are the most expensive and time-consuming method for reducing fraud, and often cause sales to decline. If your manual review rate has climbed to 10% or more, recurring fraud can be the underlying cause.

  1. Refund rate higher than 1 %

Post-transaction monitoring. Some merchants, especially digital goods companies, will review completed transactions on a daily or weekly basis and proactively refund suspicious transactions. Why? The cost of the lost digital good is usually less than the fees and penalties associated with a chargeback. When refunds start to exceed 1%, fraud may be a cause.

  1. Higher Affiliate Turnover

Fraudulent commissions aggravate fraud losses. For merchants that employ affiliate channels as a sales strategy, a sudden or unusual increase in turnover within your affiliate network may indicate fraud. A typical example is when organized crime rings attempt to multiply their ill-gotten gains by generating fraudulent commissions on top of their fraudulent transactions.

Here are Kount’s top 5 ways to spot a fraudulent transaction:

  1. Larger orders beyond the normal range – Use your common sense, even though a large order will increase your profits, they are more likely to be a fraudulent transaction and will cost you many times this in chargebacks.
  2. Orders with several of the same item and multiple purchases in a short time period from the same card – this sort of unusual activity is a sure indicator of fraud.
  3. Orders made up of expensive items – An order made up almost exclusively of big ticket items should be carefully analysed as it may be an attempt by fraudsters to gain the most profits in one go.
  4. Orders that have been placed on overnight delivery – These should be investigated, especially if they involve multiple big ticket items, as it could be an attempt by fraudsters to gain a massive profit as quickly as possible.
  5. Orders shipped to the same address but using multiple credit cards or different shipping and billing addresses – for obvious reasons this sort of suspicious behaviour is a clear indicator of potential fraud.

At Kount we are passionate about winning the war against fraud and helping merchants all over the world. As we have highlighted, there are very effective ways to reduce chargebacks, meaning that merchants can enjoy as much of their profits as possible without losing them to chargebacks.

About Kount

Kount helps businesses boost sales by reducing fraud. Our all-in-one, SaaS platform simplifies fraud detection and helps online businesses accept more orders. Kount’s turnkey fraud platform is easy-to-implement and easy-to-use. Kount’s proprietary technology has reviewed hundreds of millions of transactions and provides maximum protection for some of the world’s best-known brands. Merchants using Kount can accept more orders from more people in more places than ever before. For more information about Kount, please visit www.kount.com.