what you dont know about chargebacks can hurt you

Download What You Dont Know About Chargebacks Can Hurt You

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  1. 1. eBook WHAT YOU DONT KNOW ABOUT CHARGEBACKS... CAN HURT YOU.
  2. 2. eBookWHAT YOU DONT KNOW ABOUT CHARGEBACKS...CAN HURT YOU 2 Fraud Is The Number One Cause of Chargebacks...............................................................................................................3 Six Warning Signs of Fraud & Fraud Screening Problems................................................................................................4 Chargeback Rate Above 0.5% (50 Basis Points)/Decline Rate Higher Than 1%....................................................5 Manual Reviews Exceed 10% of Orders/Refund Rate Higher Than 1%....................................................................6 Higher Affiliate Turnover/Shopping Cart Abandoned After Submitted Transaction..............................................7 Chargeback Lag Means Delayed Fraud Detection..............................................................................................................8 Chargeback Lag: Long-Tail Losses & Distorted Financials...............................................................................................9 Five Habits of Successful Fraud-Fighting Solutions .......................................................................................................10 Dial-In Your Most Profitable Chargeback Rate ...........................................................................................................11 Decisions in 300 Milliseconds Using Real-Time Data................................................................................................12 Real-Time Integration of Best-of-Breed Technologies.............................................................................................13 Simple...Because Your Life Is Already Complex...........................................................................................................14 Artificial Intelligence (AI) Plus Human Intelligence....................................................................................................15 Stop Chargebacks. Clean Up Your Profit/Loss Picture....................................................................................................16 Are You In An Excessive Chargeback Program?................................................................................................................17 The 60-90 day (or more) lag in chargeback reporting delays fraud detection and exposes merchants to long-tail losses. This eBook looks at how to avoid chargebacks altogether and get a clearer picture of your eCommerce revenue.
  3. 3. eBookWHAT YOU DONT KNOW ABOUT CHARGEBACKS...CAN HURT YOU http://info.kount.com/eliminate-chargebacks 3 Fraud Is the Number One Cause of Chargebacks Fraud is the #1 culprit in chargebacks. Chargeback fraud originates from three primary sources: 1. Fraudulent Transactions 2. Customer Claiming fraud 3. Friendly Fraud Other Causes Chargebacks Due To Fraud 58% Fraud causes $100 billion in losses annually. Chargebacks account for most of that $100 billion loss. Other contributing factors include lost/stolen product, shipping costs, labor costs, fines, and fees. Just how much is $100 billion? Its larger than the GDPs of more than 100 countries around the world. $100 BILLION IN FRAUD LOSSES Excessive chargebacks can cost a merchant thousands of dollars a month in fees/penalties (above and beyond lost revenue and product)
  4. 4. eBookWHAT YOU DONT KNOW ABOUT CHARGEBACKS...CAN HURT YOU http://info.kount.com/eliminate-chargebacks 4 $ Refund rate higher than 1% Shopping Cart abandoned after submitted transaction Manual reviews exceed 10% of orders Six Warning Signs of Fraud & Fraud Screening Problems Be alert for these signs. These six indicators can warn you that youre being targeted by fraudsters and/or that your fraud prevention process is under performing. However, relying on them alone may leave you vulnerable to significant fraud losses. Because of the delay between when chargebacks are incurred and when theyre reported, these signals may warn you too late. Chargeback rate above 0.5% (50 basis points) Decline rate higher than 1% Higher aliate turnover
  5. 5. eBookWHAT YOU DONT KNOW ABOUT CHARGEBACKS...CAN HURT YOU http://info.kount.com/eliminate-chargebacks 5 Chargeback Rate Above 0.5% (50 Basis Points) Rule of thumb. There is no magic chargeback rate that is necessarily right for every single business. The acceptable rate for you depends on your type of businessi.e., digital goods, shippable goods, services, etc.and your tolerance for risk. However, a chargeback rate that consistently exceeds 0.5% (50 basis points) often indicates that you have a fraud problem. Throwing out good orders with bad? Most merchants do. In fact, online businesses reject an average of 2.8% of all U.S. transactions. Yet the actual fraud rate is 0.9%-1.3%. Thats 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%youre probably turning away profitable sales. Decline Rate Higher Than 1%
  6. 6. eBookWHAT YOU DONT KNOW ABOUT CHARGEBACKS...CAN HURT YOU http://info.kount.com/eliminate-chargebacks 6 Manual Reviews Exceed 10% of Orders The cost of clamping down on chargebacks. 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. 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. $ Refund Rate Higher Than 1%
  7. 7. eBookWHAT YOU DONT KNOW ABOUT CHARGEBACKS...CAN HURT YOU http://info.kount.com/eliminate-chargebacks 7 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 fraud scenario is when organized crime rings attempt to multiply their ill-gotten gains by generating fraudulent commissions on top of their fraudulent transactions. Not a sign of fraud, but a poor-performing solution. Fraud prevention systems that dont process transactions in real- time keep customers waiting and waiting. If the wait is too long, customers may abandon their shopping carts, even though they have entered all their payment information. When they purchase elsewhere and find two purchases on their credit card statement, chances are youll get penalized with a chargeback. Shopping Cart Abandoned After Submitted Transaction
  8. 8. eBookWHAT YOU DONT KNOW ABOUT CHARGEBACKS...CAN HURT YOU http://info.kount.com/eliminate-chargebacks 8 Chargeback Lag Distorts Your Profit/Loss Picture Many merchants dont know theyre being attacked until its too late. By the time chargebacks get reported from a fraud attack, youre 60-90 days or more down the road. That means you missed the chance to stop fraud. In addition, youll have a harder time identifying the cause of that fraud so you can prevent it in the future. And finally, the lag in chargeback reporting means youre financials will not show a true picture of your companys economic health, distorting month-to-month performance. Chargeback Lag OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH Undetected Fraud. Record Sales! Record Prots! Detect Fraud. Record Sales, Stagnating Prots. Fight Fraud. Reduced Sales, Falling Prots. Falling Sales, Plunging Prots, Chargeback Program. Falling Sales, Big Losses, Call Kount! Undetected Fraud. Strong Sales, Strong Prots. Chargebacks Actually Incurred Chargebacks Reported Sales
  9. 9. OCTOBER ACTUAL > NOVEMBER ACTUAL > DECEMBER ACTUAL > JANUARY ACTUAL > FEBRUARY ACTUAL > MARCH ACTUAL > APRIL ACTUAL > eBookWHAT YOU DONT KNOW ABOUT CHARGEBACKS...CAN HURT YOU http://info.kount.com/eliminate-chargebacks 9 OCTOBER REPORTED NOVEMBER REPORTED DECEMBER REPORTED JANUARY REPORTED FEBRUARY REPORTED MARCH REPORTED APRIL REPORTED 4,223 4,817 7,760 11,952 12,417 6,275 3,134 1,205 2,046 1,012 429 122 3 2,491 3,526 1,088 493 162 4,552 5,274 1,352 774 6,107 4,627 1,773 3,059 3,216 3,134 1,348 927 492 59 6 11,391 2,553 5,464 9,582 12,867 9,659 9,0631,391 0.62% 1.31% 2.19% 3.17% 2.63% 2.35%0.36% 407,626 417,674 436,444 405,951 365,976 384,922379,181 < TOTAL CHARGEBACKS ON OCTOBER SALES < TOTAL CHARGEBACKS ON NOVEMBER SALES < TOTAL CHARGEBACKS ON DECEMBER SALES < TOTAL CHARGEBACKS ON JANUARY SALES < TOTAL CHARGEBACKS ON FEBRUARY SALES < ACTUAL CHARGEBACKS ON MARCH SALES < TOTAL CHARGEBACKS ON APRIL SALES < TOTAL CHARGEBACKS50,579 TOTAL REPORTED MONTHLY CHARGEBACKS TOTAL MONTHLY TRANSACTIONS ASSUMED CHARGEBACK RATE 1.18% 1.85% 2.74% 3.06% 1.71% 0.81%1.11% ACTUAL CHARGEBACK RATE = TOTAL REPORTED CHARGEBACKS TOTAL TRANSACTIONS = TOTAL ACTUAL CHARGEBACKS TOTAL TRANSACTIONS > > > > > > > Chargeback Lag: Long-Tail Losses & Distorted Financials Beware of misleading numbers. In the chart below, 2,553 chargebacks are reported in November, for an assumed 0.62% chargeback rate. But as more November chargebacks get reported in the ensuing months, they total up to 4,817, for an actual 1.18% chargeback rate. Your fraud prevention solution should stop these orders before they turn into chargebacks. REPORTED ACTUAL
  10. 10. eBookWHAT YOU DONT KNOW ABOUT CHARGEBACKS...CAN HURT YOU http://info.kount.com/eliminate-chargebacks 10 Five Habits of Successful Fraud-Fighting Solutions. Avoid ch

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