3 Steps for Online Vaping Businesses to Stop Credit Card Fraud & Chargebacks
Businesses in the broader tobacco alternative industry, which includes online vaping businesses, e-cigarette, e-juice, online cigar and glass retailers, unfortunately, all get inundated with a disproportionate amount of credit card fraud and ‘friendly chargebacks’, relative to other online businesses.
Fraudulent purchases and ‘friendly chargebacks’ are a significant issue that any successful online vaping business will have to confront in order to protect their profitability. Thankfully, there are a few easy steps that online vaping businesses can take which will drastically reduce their company’s exposure to credit card fraud and friendly chargebacks.
Background: What are Customer Credit Card Fraud & Chargebacks
First a couple of quick definitions:
- Fraudulent Purchases: In plain english, the term ‘fraudulent purchases’ just means a scammy customer making a purchase at your website using a stolen credit card, and then the actual card holder realizing it (usually by seeing the unrecognized charge on their monthly statement a few days later) and that legitimate cardholder issuing a chargeback to recover the stolen funds.
- Friendly Chargebacks: Chargebacks refer to anytime a customer disputes a charge to their credit card provider. When this happens the customer immediately gets a temporary refund, the merchant get’s the funds removed from their account and held in escrow, and then the dispute is resolved. Friendly chargebacks, a specific type of chargeback is a confusing term, which just means a customer of yours making a legitimate purchase with their own credit card, but then using the chargeback system (and claiming that the product never arrived, that it was broken, that they didn’t authorize the charge, or some other reason) so that they don’t have to pay for it.
Why Fraud & Chargebacks are So Bad for Online Vape Businesses
Unchecked, credit card fraud and ‘friendly chargebacks’ can destroy an e-commerce vape retailers bottom line and business. That’s because when a vaping business receives a chargeback or fraudulent purchase they not only lose out on the cost of the product sold and any fulfillment or shipping costs, but when the inevitable chargeback hits, the business also loses out on all revenue associated with the sale and suffers yet further losses when their credit card processor assesses fines for the chargeback. And finally, if there are enough chargebacks, the credit card processor may terminate the merchant account altogether, and the eCommerce business won’t be able to accept credit cards going forward.
3 Steps to Minimize Fraud & Chargebacks
There are a number of techniques that an online vaping business can take to mitigate fraud and friendly chargebacks, however, there are a few basic steps that almost every eCommerce business should take:
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Enable Payment Gateway Fraud Filters
When a customer comes onto your website to make a purchase you want to better ensure that they are the actual owner of their credit card, and that they are actually shipping to a location that makes sense. There are some easy setting configurations in your payment gateway’s fraud filter that will help do that for you.
- Restrict purchases that are shipped to countries outside your geographic target areas
- Flag purchases that made with credit cards originating outside your geographic target areas
- Flag all purchases outside of a normal dollar range for manual review
- Require customers to enter their zip code (AVS) and 3 digit code (CVV) before they can process a sale
- Restrict customers to only 3 mistakes when entering their card data to prevent fraudsters “guessing” at zip codes for example
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Sign Up For Chargeback Alerts
A chargeback alert, is a service that you can sign up for which notifies you that a customer has initiated a chargeback, and provides you with an opportunity to immediately refund the transaction in full and avoid the chargeback dispute altogether. Obviously, this isn’t a perfect solution, because it means you’re issuing a full refund to the customer. But, in all cases it allows you to avoid additional fines by your credit card processor, and in situations where you haven’t yet shipped the goods the opportunity to stop shipping and recover the cost of the underlying vaping product.
Of note: If you decide to use chargeback alerts, you should be aware that only about 30% of attempted chargebacks are ‘caught’ through the alert system. Which means, enabling alerts reduces, but doesn’t eliminate, your risk of chargebacks.
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Fight Illegitimate Chargebacks
Realistically, an eCommerce vape shop can use the above steps to reduce, but not altogether eliminate, fraud and chargebacks. Those chargebacks that do come through, should be addressed. For illegitimate chargebacks, a business should fight their chargebacks aggressively.
Unfortunately, the technical and time requirements on a business to successfully fight a chargeback are difficult for anyone that isn’t a chargeback specialist. As a consequence, it’s generally advisable (and surprisingly affordable) to outsource your chargeback fighting to a specialist. Typically, they’ll improve your win ratio significantly, which is important because fighting and losing chargebacks doesn’t help your business at all, whereas fighting and winning chargebacks recovers all of the funds in question, helps discourage future customer initiated fraud, and helps underscore the legitimacy of your business to your credit card processor.
About Soar Payments
Soar Payments is a high risk merchant account provider that specializes in online eCig merchant accounts. In addition to providing credit card processing and ACH check processing to high risk merchants, Soar Payments provides a number of integrated related services such as chargeback protection, and a fraud filter enabled payment gateway. To sign up to become a Soar Payments merchant, complete the online application.