Complacency and misplaced faith in the safety of credit card technologies may be behind a recent spike in chargeback disputes, My Business has been told.
Philip Field of the Financial Ombudsman Service (FOS) spoke with My Business in response to recent stories about businesses effectively having goods stolen through delivery fraud.
He questioned whether merchants, banks and card providers alike have become overly complacent in checking for fraudulent transactions amid the marketing power of new fraud-detection technologies.
“This issue of chargebacks … used to be a bit of an issue about 10 years ago, and the banks did a lot of work in fraud prevention, giving customers back in the day DVDs and brochures about how to minimise fraud, and the disputes about it dropped off,” he said.
“In the last six months, they’ve started coming back again. I just wonder whether people have got a bit complacent.”
Mr Field added that credit cards are not a means of eradicating fraud and dishonesty altogether.
“Credit cards are a no more guaranteed method of payment than any other method of payment – back in the old days, cheques could bounce; you can still get fake cash; and credit cards carry a risk too,” he said.
Process for disputing chargebacks
A major gripe for business owners has been a lack of clarity and consistency in where to lodge their disputes. My Business heard from merchants who had been told to approach their bank, the card provider, ASIC and even the police.
However, My Business can confirm the correct procedure is to first raise the issue with your bank, and if that does not provide the desired outcome, a formal complaint should be lodged with the Financial Ombudsman Service – particularly in the case where legitimate deliveries are charged back because of delivery fraud, rather than card fraud.
“What they should do is gather all the information they’ve got on the transaction and give it to their bank as quickly as possible,” said Mr Field.
He also cautioned to do so promptly, as time limits apply for investigating chargebacks.
In the event the bank fails to produce the desired outcome, the next step is to lodge a complaint with the FOS.
“If that’s the case, and they’ve got evidence of delivery to that particular person, then by all means the merchant should lodge a dispute with us and we’ll see whether or not the bank has done the right thing in accepting the chargeback,” said Mr Field.
“They’ve got to accept the initial [chargeback] request, but … if the merchant has given them sufficient information to show that the person who is claiming the chargeback actually got the goods, then the bank should go into battle for their customer – the merchant – and push it back.”
Mr Field noted the FOS is a free service, meaning the only cost to business owners is the time in putting their complaint together.
He added that while lodging a complaint with the police is also a possibility, doing so is unlikely to recoup lost funds.
How to minimise chargebacks
According to Mr Field, it is virtually impossible to eliminate chargebacks altogether. However he urged all businesses to adopt a proactive approach in reducing their risk of such exposure.
“When you’re processing a transaction, if you’re an online business, then you should speak to your bank about what additional measures you can take to ensure that you are dealing with the actual cardholder, so things like Verified by Visa or Mastercard SecureCode offer, not guaranteed, but better levels of identification,” he said.
“If you’re dealing with a customer over the phone, or certainly face-to-face, it pays to get some information like a copy of the drivers licence so you can match the name on the card to the name on the driver’s licence.”
“If they’re delivering goods, it’s always good to get a signed receipt, but that won’t always protect you, because if you’re delivering goods to say a building site, anyone could sign for that.
He also suggested that delivery drivers could take a photo of the recipient’s driver’s licence on delivery to verify the identity of the person accepting the delivery.