Automated subscription payments are quite literally the gift that keeps on giving for eCommerce. Once you’ve successfully acquired a customer, they keep buying and buying and buying. Especially popular among Millenials, subscription-based businesses are booming in practically every industry, from personal care products (ex: Manscaped) to toys (ex: Tinker Crate) to specialty foods (ex: Home Chef).
Unfortunately, the subscription model also carries with it an elevated risk of chargebacks. The chargebacks sources generally fall into two different categories: friendly fraud & criminal fraud. Let’s talk about ways you can prevent both.
Preventing Chargebacks from Friendly Fraud
“Friendly fraud” is a real misnomer, because there is truly nothing friendly about these chargebacks. Friendly fraud describes a scenario in which consumers make legitimate purchases and receive the products, but then contact their credit card issuers to dispute the charges and have their money returned. Friendly fraud chargebacks will cost you way more than just the loss of product and shipping fees—the processor will hit you with a chargeback fee as well. And if your chargeback rate hovers close to 0.8%, there may be even heavier fees imposed that can set you back thousands of dollars.
Although it’s impossible to completely eliminate friendly fraud, you can address legitimate concerns with ethical customers before they reach out to their bank to dispute a charge. A large number of subscription chargebacks occur when customers do not understand the subscription process or forget that renewal was due. Here are some tips that can reduce the frequency of friendly fraud chargebacks:
1. Be easy to reach and offer stellar customer service.
According to Verifi, 86% of consumers that opted to file for a chargeback didn’t give the merchant an opportunity to address their concerns first. Promote direct communication with your customers by prominently displaying your customer support information on your website and providing several convenient ways to be contacted (i.e., phone, fax, email, chat, etc). When they call, go above and beyond to address their concerns, and cancel their subscription promptly if they ask you to.
2. Make canceling a subscription super simple.
If your cancellation process is confusing, annoying, or time-consuming, your frustrated customer may decide that disputing the charge is the easiest way to end their subscription. Make canceling as easy as possible, such as by adding a button or link to the bottom of your emails and on your website, so that customers don’t resort to calling their banks.
3. Be clear about how a free trial works and when it ends.
Your customers need to know how long their free trial lasts and at what point they’ll be billed. Before the free trial concludes, give subscribers a thoughtful heads-up that they’ll be automatically moved to a paid plan at the end of the trial.
4. Send a courtesy email before filling the first order.
After an initial subscription transaction, send an email in advance of fulfilling the order so that if the customer has decided to not continue with the subscription there is enough time for them to cancel and prevent a friendly fraud chargeback.
5. Notify subscribers prior to each recurring billing.
Even subscribers that have agreed to recurring billing when they enrolled appreciate a courteous reminder several days in advance of the next billing cycle. If a subscriber decides to unenroll, better to give them that opportunity before the payment is processed than to have them request a chargeback after the fact and incur fees.
6. Match your billing descriptor to your company or product name.
This one is simple but important. Your “billing descriptor” (or “credit card statement identifier”) is the name that will appear on your customer’s credit card statement. When customers don’t recognize who took payment from them and why, they are likely to dispute the charge. So make sure that your billing descriptor is as close as possible to your company name.
Preventing Chargebacks from Criminal Fraud
Data breaches occur almost weekly and stolen credit card information is widely available on the dark web. Fraudsters that obtain this data look for vulnerabilities in online stores’ fraud protection systems and often target subscription transactions because they think their activity will fly under the merchant’s radar. Every online platform must ensure their fraud prevention tactics cover their subscription business as well.
Although subscription transactions are vulnerable to all types of fraud, the most typical scheme we have seen is “triangulation fraud.” This type of fraud involves three parties: the fraudster, the unsuspecting shopper, and the targeted eCommerce store (that’s you). Here is how it works: An online storefront is created by the fraudster, often on eBay or Amazon, that offers high-demand goods at extremely low prices. The fraudster receives payment for goods that are ordered by the innocent shopper through the new online storefront. He then uses stolen credit card data to purchase those very same goods from your legitimate website and has you ship them directly to the shopper that purchased them. Ultimately, the true credit card owner’s bank issues a chargeback and you are left to deal with it.
How can you protect yourself against criminal fraud chargebacks? Here are some important tips to keep in mind:
1. Look for inconsistencies
Screen every order for potential signs of fraud, such as when the billing address is different from the shipping address, or the email address contains an unusual amount of characters, or the order doesn’t have an exact AVS match. Monitor changes in customer details, particularly changes to the phone number, email, or shipping address. These could indicate fraud resulting from an account takeover.
2. Install a fraud prevention service
Screening orders manually can be a huge drain of time and resources. You may want to consider an automated solution that can do all the fraud vetting for you. Some even offer a chargeback guarantee, which means you’ll be compensated if a chargeback does slip through their system.
3. If a chargeback does occur, don’t forget to cancel the subscription.
While seemingly an obvious follow-up, we have seen this step missed and the chargebacks keep rolling in.
4. Don’t offer a completely free product
Shy away from offering a completely free product in the hope that some customers will become long term customers. This invites fraudsters that use bots to create multiple orders in an attempt to get as many free products as possible. We recommend that you charge at least a shipping fee to disincentivize this behavior.
Unsubscribe from Subscription Fraud
User-friendly policies and some basic best practices will prevent many instances of chargebacks. What’s more, automating your fraud protection process will save you time, money, and labor (not to mention headaches). NoFraud is an option that is compatible with all Bold products. NoFraud’s cutting-edge screening tools virtually eliminate chargebacks while keeping your approval rate high. If any chargebacks do occur, you’ll be fully reimbursed under a Chargeback Protection Guarantee. To learn more, reach out to NoFraud here.