What You Dont Know About Chargebacks Can Hurt You

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eBook WHAT YOU DON’T KNOW ABOUT CHARGEBACKS... CAN HURT YOU.

Transcript of What You Dont Know About Chargebacks Can Hurt You

Page 1: What You Dont Know About Chargebacks Can Hurt You

eBook

WHAT YOU DON’T KNOW ABOUT CHARGEBACKS...CAN HURT YOU.

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eBookWHAT YOU DON’T KNOW ABOUT CHARGEBACKS...CAN HURT YOU

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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.

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Fraud Is the Number One Cause of ChargebacksFraud is the #1 culprit in chargebacks. Chargeback fraud originates from three primary sources:

1. Fraudulent Transactions2. Customer Claiming fraud3. 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? It’s larger than the GDPs of more than 100 countries around the world.

$100 BILLIONIN FRAUD LOSSES

Excessive chargebacks can cost a merchant thousands of dollars a month in fees/penalties (above and beyond lost revenue and product)

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$Refund rate higher

than 1%Shopping Cart abandoned after

submitted transaction

Manual reviews exceed 10% of orders

Six Warning Signs of Fraud & Fraud Screening ProblemsBe alert for these signs. These six indicators can warn you that you’re 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 they’re reported, these signals may warn you too late.

Chargeback rate above 0.5% (50 basis points)

Decline rate higher than 1%

Higher affiliate turnover

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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 business—i.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%. 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.

Decline Rate Higher Than 1%

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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%

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Higher Affiliate TurnoverFraudulent 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 don’t 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 you’ll get penalized with a chargeback.

Shopping Cart Abandoned After Submitted Transaction

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Chargeback Lag Distorts Your Profit/Loss PictureMany merchants don’t know they’re being attacked until it’s too late. By the time chargebacks get reported from a fraud attack, you’re 60-90 days or more down the road. That means you missed the chance to stop fraud. In addition, you’ll 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 you’re financials will not show a true picture of your company’s economic health, distorting month-to-month performance.

Chargeback Lag

OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH

Undetected Fraud. Record Sales!

Record Profi ts!

Detect Fraud. Record Sales,

Stagnating Profi ts.

Fight Fraud.Reduced Sales,Falling Profi ts.

Falling Sales, Plunging Profi ts,

Chargeback Program.

Falling Sales, Big Losses, Call Kount!

Undetected Fraud. Strong Sales,

Strong Profi ts.

Chargebacks Actually Incurred

Chargebacks Reported

Sales

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OCTOBER ACTUAL >

NOVEMBER ACTUAL >

DECEMBER ACTUAL >

JANUARY ACTUAL >

FEBRUARY ACTUAL >

MARCH ACTUAL >

APRIL ACTUAL >

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OCTOBERREPORTED

NOVEMBERREPORTED

DECEMBERREPORTED

JANUARYREPORTED

FEBRUARYREPORTED

MARCHREPORTED

APRILREPORTED

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 CHARGEBACKS50,579TOTAL REPORTED MONTHLY CHARGEBACKS

TOTAL MONTHLYTRANSACTIONS

ASSUMED CHARGEBACK RATE

1.18% 1.85% 2.74% 3.06% 1.71% 0.81%1.11%ACTUAL CHARGEBACK RATE

= TOTAL REPORTED CHARGEBACKSTOTAL TRANSACTIONS

= TOTAL ACTUAL CHARGEBACKSTOTAL TRANSACTIONS

> > > > > > >

Chargeback Lag: Long-Tail Losses & Distorted FinancialsBeware 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

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Five Habits of Successful Fraud-Fighting Solutions.Avoid chargebacks with a fraud prevention solution like Kount Complete. Detect and shut down fraud in real-time, not 60-90 days after an attack starts—by then, it’s too late. Below are the 5 capabilities you should look for in a fraud prevention solution to ensure you’re protected against all the dangers of fraud, including Chargeback Lag.

Dial-In Your Most Profitable Chargeback Rate1Decisions in 300 Milliseconds Using Real-Time Data2Real-Time Integration of Best-of-Breed Technologies3Simple...Because Your Life Is Already Complex4Artificial Intelligence (AI) Plus Human Intelligence5

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Dial-in Your Most Profitable Chargeback RateThere is no universal “best rate” for chargebacks. Every business has its own unique sweet spot. Approve more high-risk transactions for higher sales (but increased chargebacks). Or decline more high-risk transactions and reduce chargebacks (but lower sales). Kount lets you precisely dial-in your rate so the

revenue generated by borderline approvals consistently exceeds the chargeback costs of those borderline approvals. All the while staying under processor chargeback thresholds. Bottom line? Your fraud prevention solution becomes a profit accelerator, instead of being a cost center.

1 10 20 30 40 50 60 80 90 99

APPROVE DECLINE

Order Volume

Kount Risk Score

Kount makes it easy to adjust your chargeback rate and precisely dial-in the rate most profitable for your company

APPROVE DECLINE

fewer chargebacks lower sales

more chargebacks higher sales With the ability to precisely

dial-in the most profi table chargeback rate for your company, you have the power to accept more orders from more people in more places.

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Decisions in 300 Milliseconds Using Real-Time Data From click-to-decision point in the blink of an eye. Some major fraud prevention companies do NOT own all of their technology...so order processing is only as fast as their slowest 3rd party provider. Because Kount owns their core technologies,

they’re able to deliver sub-second processing on transactions. What’s more, Kount uses real-time data, because information that’s even seconds old can leave you dangerously exposed in today’s high-speed, millisecond world.

It takes 395 milliseconds for a 99 mph fastball to reach home plate. Kount Complete processes transactions in only 250-350 milliseconds on average. In other words, don’t blink or you may miss it (a human eye blink is 300 to 400 milliseconds).

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Real-Time Integration Of Best-of-Breed Technologies Dynamic, real-time interaction between multiple, best-of-breed technologies. An integrated or layered approach is far superior to standalone tools that leave you exposed to many types

of fraud. And dynamic, real-time interaction between multiple technologies provides dramatically better protection compared to workbench solutions that merely aggregate individual data points.

250-350 ms

BANK

RiskDecision

RulesEngine

KOUNTArtificial

Intelligence KOUNTRISK

SCORE

MERCHANTCONSUMER

ProxyPiercer

Geolocation

Cross-Merchant

Linking

AffiliateFraud Signals

REAL-TIMEANALYTICS

Multi-LayerDevice

Fingerprinting

Persona™

Technology

Mobile DeviceSignals

DynamicMonitoring

TransactionVelocity

ShoppingCart Data

MerchantData

› Ecommerce› Mobile› Retailer› Digital Goods› Games

VariableData

TRANSACTIONS INCLUDE:

£€

$

DENIED

APPROVED

› Payments› Logins› Free Trials

› New Accounts› Phone Orders› Mail Orders Kount reviews hundreds of data elements and

analyzes them using several technologies and processes. After the data is analyzed, a Kount Score is determined and all relevant data is then reviewed by the Risk Decision Rules Engine to determine whether the transaction is approved, declined or forwarded for further review. All in less than 300 milliseconds...for friction-free checkout.

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15 Rules200+

Rules

Simple...Because Your Life Is Already ComplexAs few as 15 rules with Kount. Rules are a vital part of effective fraud mitigation. But too many rules make fraud prevention hard to manage, can cause conflicts that result in false positives, and bog down performance. Some systems require up to 200 or

more rules in their schemes. On the other hand, Kount customers average about 15 to 25 rules. That means you only have to manage a handful of core rules and a handful of exception rules based on the unique aspects of your business. Easy.

vs

Fewer rules with Kount means easier, faster management, fewer conflicts and false positives, and faster performance. Bottom line? You can focus on your business, not on becoming a fraud expert...and still have the most effective fraud prevention solution possible.

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Artificial Intelligence (AI) Plus Human IntelligenceTwo heads are better than one. Kount is a pioneer in Artificial Intelligence, applying Machine Learning to fraud prevention for more than 10 years. We capitalize on the fact that AI performs a number of functions extremely well—for example, processing data at speeds far beyond human capability. At the same time, we understand humans are better at other tasks—like creating

new ideas, recognizing large frame patterns, and strategically creating rules for computers to follow. After all, no machine knows your business better than you do. At Kount, we know the most-effective fraud prevention strategy takes advantage of the best capabilities of both machines and people to defeat sentient, adaptable human adversaries.

?

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Stop Chargebacks. Clean Up Your Profit/Loss PictureWith strong, real-time fraud prevention, chargebacks are no longer a problem. Once you get chargebacks tamed, the 60-90 day (or more) lag in reporting becomes a non-issue. No more exaggerated revenue numbers caused by undetected, fraudulent

transactions. No more long-tail losses. No distorted month-to-month swings in financials. Instead, you get the freedom and power to safely experiment with varying chargeback rates to see what delivers the most profitable results for your business.

Chargeback Lag

OCTOBER NOVEMBER DECEMBER JANUARY FEBRUARY MARCH

Chargebacks Actually Incurred

Chargebacks Reported

Sales

No long tail losses and no distorted fi nancials when real-time fraud prevention shuts down fraudulent chargebacks

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In just 30 minutes we’ll show you how hundreds of other merchants just like you put an end to chargebacks and increased sales as a result. Reduce your chargeback rate in as little as 30 days.

Kari BernardoE-Commerce Risk Manager, Speck

About KountMerchants using Kount can accept more orders from more people in more places than ever before. For each transaction, Kount’s “decisioning” engine analyzes hundreds of relevant variables and activity across the globe in real-time providing the most accurate fraud prediction available. While reducing the risk of fraudulent activity, Kount’s intuitive business intelligence tools help merchants increase revenue opportunities in the future, thus boosting sales while reducing fraud. Kount is a single, turnkey fraud solution that is easy-to-implement and easy-to-use.

THE INDUSTRY AGREES

Are You In An Excessive Chargeback Program?

“““We went from 150 chargebacks a month—We went from 150 chargebacks a month—We went from 150 chargebacks a month—“We went from 150 chargebacks a month—“We went from 150 chargebacks a month—“We went from 150 chargebacks a month—“We went from 150 chargebacks a month—We went from 150 chargebacks a month—We went from 150 chargebacks a month—“We went from 150 chargebacks a month—“We went from 150 chargebacks a month—“We went from 150 chargebacks a month—“99% of them due to fraud—to an average 99% of them due to fraud—to an average 99% of them due to fraud—to an average

of about 10 chargebacks a month.”of about 10 chargebacks a month.”of about 10 chargebacks a month.”of about 10 chargebacks a month.”of about 10 chargebacks a month.”of about 10 chargebacks a month.”SCHEDULE A LIVE DEMO