Digital Wallet Chargeback Policies Have Changed: What You Need to Know

It’s been a challenging couple of years for ecommerce merchants trying to fight fraud. Account takeover (ATO) fraud increased by 50 percent in the latter half of 2020 and it’s still rising. So is friendly fraud, which happens when customers order an item and then claim it never arrived, arrived damaged or was not as described. Both of these fraud trends make it more challenging than ever for merchants to protect their business from chargeback losses, fees and processing rate hikes—and the rise of digital wallet payments adds another layer of challenges to the fight against chargebacks.

Chargebacks happen when a customer disputes a charge with their credit card provider. Consumers can file chargebacks this way, even if the card purchase was made via digital wallet. However, digital wallet users also have the option to file a dispute with the wallet provider instead. This is essentially filing a chargeback directly with PayPal, Square or another wallet.

Merchants are increasingly reporting that it’s harder to successfully fight digital wallet disputes than credit card chargebacks. One survey found that 5 percent of merchants reported the most success winning Google Pay and Apple Pay disputes, while 48 percent reported they were most likely to succeed when contesting credit card chargebacks. Here’s what merchants need to know to protect their revenue, keep their risk profile low, and maintain their ability to accept digital wallet payments.

Reduce your chargeback risk

Make sure your store follows best practices for seller protection, which typically requires you to document each transaction and delivery, as well as keep your integrated checkout software up to date. Meeting these requirements is the foundation for contesting chargebacks. Failing to meet them can cause your store to lose selling privileges.

Know what kinds of transactions are protected on different platforms. Don’t conduct transactions for high-risk items through platforms that don’t protect them. For example, PayPal’s Seller Protection doesn’t extend to donations, motorized vehicles, industrial machinery, gift cards and prepaid credit cards, and several other kinds of transactions. Card issuers and digital wallet providers can and do change their merchant protection rules from time to time, so sign up for alerts and read the update emails to make sure you’re not selling unprotected items.

Screen every order for fraud, even orders from repeat customers who are logged in to their store accounts. This can weed out orders by account takeover fraudsters, and it helps your fraud AI learn how your good customers behave. Follow screening with manual review of each suspicious order to avoid blocking good orders along with fraud. Forty percent of consumers in a 2021 five-country survey by ClearSale agree that they won’t shop again with merchants who decline their orders.

Make sure you communicate clearly with customers. The merchant of record name on their card statement should match your website so they easily recognize the transaction. Track every shipment and delivery. This creates a better customer experience—and a digital trail in case of a chargeback. Describe items accurately on your product pages, include clear photos and videos, and answer customer questions in a timely way to prevent misunderstandings.

What merchants need to fight chargebacks and win

Your store should also collect and securely save relevant data, because you’ll need it fast when there’s a chargeback or dispute. Every payment platform and card issuer sets a deadline for merchants to respond to chargebacks. PayPal, for example, gives merchants 10 days to respond to chargebacks filed by buyers with their credit card companies for purchases made through PayPal, and 20 days to respond to disputes filed by customers through PayPal directly. With the right data, you can quickly take these steps to dispute fraudulent claims:

Show that the customer visited your website or app. Friendly fraudsters often claim that they never made the purchase they’re contesting. You can counter that claim by sharing data that the customer keyed in as part of the transaction, like their billing address and the CVV number on their credit card.

You can also show that the customer’s IP address matches that associated with the transaction, which proves that they visited the site at the time of the transaction. You can even show the pages the visitor from their IP address visited on your website, to show a path to purchase at the time of the disputed transaction.

Show that your store honored its end of the transaction. Provide proof of delivery, a refund or an exchange, and include any customer communication about the transaction.

Share any evidence of return fraud. Fraudsters will sometimes request a return label and use it to send in an empty box, a different item or a used or damaged product. Submit photographs with your documentation.

Include any other indications of fraud. For big-ticket items or repeat offenders, it may be worth your time to review the customer’s social media posts. If they’re flaunting the items they claim never arrived, submit those posts as part of your chargeback or dispute response. If the customer has filed multiple chargebacks or repeatedly returned worn or damaged items, share the documentation of those transactions as well.

Should you stop accepting digital wallet payments?

Digital wallets are here to stay, because shoppers like the convenience and the security. Seventy-one percent of consumers in the 2021 ClearSale survey said they always or sometimes use a digital wallet instead of keying their card data into a website. Merchants that don’t take digital wallet payments are likely to lose customers to competitors who do take them.

Instead, focus on making the most of digital wallet transactions by taking steps to prevent chargebacks and disputes—and by automatically collecting and saving the information you’ll need in case there’s a claim. By screening your orders for fraud and false declines and maintaining good records, you can give your legitimate customers a convenient shopping experience and turn fraudsters away.


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