4 Tips for Fantasy Sports Businesses to Reduce Chargebacks
One of the fastest growing industries we serve at Soar Payments is fantasy sports. With the increasingly settled regulatory situation, the number and size of fantasy sports related businesses is growing tremendously. One things we’ve also noted is that most fantasy sports startups are pretty focused on building and growing their business, and thus haven’t even considered, not to mention taken basic steps to limit the likelihood of getting inundated with chargebacks.
Fraudulent purchases and ‘friendly fraud chargebacks’ can be a pretty big problem for fantasy sports related businesses, and thus successful entrepreneurs need to protect against them in order to preserve their business’ profitability. Thankfully, there’s a few easy steps fantasy sports companies can take to dramatically reduce their exposure to chargebacks.
Background: What are Chargebacks and Friendly Fraud
First, let’s cover the basics:
- Fraudulent Purchases: This is pretty self-explanatory. Someone places an order with a stolen credit card. Eventually, the real card holder notices the charge on their credit card statement and initiates a chargeback stating that they don’t recognize the charge.
- Friendly Chargebacks: These are chargebacks initiated by customers of yours that made the original purchase with their own credit card, but later regret the purchase. Either they’re dissatisfied with the service, they claim they didn’t get what they paid for, or in some cases they just lost when playing a fantasy sport and decided they didn’t want to pay for it. These are called ‘friendly chargebacks’ and they’re generally a lot more common than actual fraudulent purchase chargebacks.
Why Fraud & Chargebacks are a Problem for Fantasy Sports Companies
If they get out of control, credit card fraud and ‘friendly chargebacks’ can destroy a fantasy sports businesses profit margin and ultimately their business. That’s because when a business receives a chargeback, not only do they get the funds in question immediately held in escrow, they also incur additional fees with their credit card processor, and have to engage in a time consuming dispute resolution process in order to recover the revenue that is held in escrow. And, if there are excessive chargebacks, the business can have their fantasy sports merchant account terminated, meaning the business cannot accept credit cards in the future.
4 Steps to Minimize Fraud and Chargebacks
There are many ways a fantasy sports business can limit their chargebacks and fraud, but in this article we’re going to focus on ones that are easy to implement, and that virtually every fantasy sports business should be doing.
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Use Clear Payment Descriptors With a Phone Number
A big category of chargebacks comes from people who check their monthly credit card statement and don’t recognize the charge. Thinking they’ve been defrauded they initiate a chargeback. By making sure that the name of your business that shows up on customer’s credit card statement is easily identifiable, you can dramatically eliminate those. For example, don’t use your legal corporate name, use the name that your customers actually know the business by. Also, make sure to add in your customer service phone number, so that if the customer does have a question about the charge, your phone number is conveniently available for the customer to call you instead of initiating a chargeback.
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Enable Payment Gateway Fraud Filters
Another big source of chargebacks are transactions in which the credit card used was actually stolen. Unfortunately, there’s a pretty vibrant black market for stolen credit cards, and a whole industry exists of people who purchase stolen credit cards and attempt to use them for free services. Thankfully, by configuring your payment gateway’s fraud filter (the way you accept payments online) you can dramatically reduce this type of fraud.
- Flag purchases from the third-world. Unless you’re specifically marketing to customers in the third world, flag any purchases from there for closer inspection.
- Flag purchases in which the IP address indicates one country, while the country code of the credit card indicates another.
- Flag all purchases outside of a normal dollar range for review
- Require customers to enter their zip code and the three digit security code before they can process a sale (and configure your payment gateway to require a match before the sale gets processed)
- Restrict customers to only 3 ‘typos’ when entering their credit card information in order to prevent fraudsters from guessing at 3 digit codes for example.
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Enroll in Chargeback Alerts
Chargeback Alerts, is a service you can enroll in that will notify you if a customer has initiated a chargeback, and provide you with a 2-3 day window in which you can decide whether to give the customer a full refund. If you do refund the customer, then you will avoid the chargeback process, not incur any additional fees by your credit card processor, and the chargeback won’t hit your chargeback ratio with your credit card processor. Obviously, this isn’t an ideal solution for every business (because it requires you to issue a full refund), but for a lot of businesses that are more concerned about keeping their chargeback ratio low and eliminating fees than refunding an occasional problem customer, this is an easy way to reduce the number of chargebacks your business gets by 30-40%.
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Fight Illegitimate Chargebacks Professionally
Over 60% of businesses don’t fight chargebacks at all. Fraudsters know this, and they know that when they initiate a chargeback they have almost a 90% chance of getting the service or item for free. Moreover, they systematically look for businesses that aren’t fighting chargebacks and target them aggressively. That’s why every fantasy sports business needs a system in place for professionally and effectively fighting chargebacks.
Unfortunately, the process of fighting chargebacks is pretty technical, so it’s generally a good idea for small and mid-sized businesses to outsource your chargeback fighting to a third-party expert.
About Soar Payments
Soar Payments is a high risk merchant account provider that specializes in providing fantasy sports and online gaming businesses with all-in-one credit card processing solutions. To become a Soar Payments merchant, simply apply online.