I feel for you. It’s tough being a small biz online. Nobody is your friend. Everything is at your expense. Chargebacks really do suck when you are a merchant. Especially when it is because of a dishonest customer. It’s hard enough to get your business to do well. You certainly don’t need thieves to come along and steal from you.
Maybe one days things will change for the better for merchants. Fortunately there is hope. Visa and MasterCard are losing lawsuits at a record pace. And they don’t seem to learn their lesson as the changes they’ve made recently are likely to piss some people off. Slowly but surely they are losing their monopoly on processing. This can only benefit merchants.
No disrespect to you tibrewal, but that is not true, especially if you are in the business of retailing digital files rather than physical goods. You have absolutely no protection when you are selling digital files.
Some merchant account providers are now providing a layer of security called LIABILITY SHIFT.
Basically, this is based on the VERIFIED BY VISA and MASTERCARD SECURE CODE security systems.
How it works is that if the purchaser is enrolled in either one of the above security systems (which are increasingly becoming mandatory) then during purchase the consumer enters his or her password for the above two security services. Now according to Visa and Mastercard, the above mentioned services are hack-proof and in support to their claim, they are not accepting any chargebacks if a client places an order through the above security systems.
So what happens is that, let’s say a client comes to my the merchant site and places an order, the Verified by Visa or Mastercard SecureCard interface pops up and the client enters his/her password to continue with the purchase. Once the purchase is completed, the merchant along with all the details at his end sees this: “LIABILITY SHIFT: YES”. This means that if the client claims chargeback with the false claim that his goods (whether digital or physical products) were never delivered, all the merchant needs to do is provide the packing slip or waybill tracking number for physical goods or in the case of digital files, the log records of downloads and that’s it. The clearcopy never becomes a chargeback and the merchant is in no way obliged to even worry about it or refund the funds. The good thing about this it doesn’t even count against the merchant thus jeopardizing his relationship with the merchant account provider.
A chargeback becomes only effective in this case when the merchant provides faulty goods and does not accept responsiblity for it. So in this case the client can provide the fault details and evidence to the necessary parties and get his chargeback but no client would do this because unless it’s legitimate because it’s a lenghty process and no merchant should (in my opinion) not take responsibility for faulty items because if found liable, the implications and consequences may be great on the business even resulting in high figure court cases.
I don’t know which merchant accounts provide this Liability shift service, mine does. I’m not sure if I’m allowed to post their name here but let me know if I should and I’d be happy to.
Verified by Visa and SecureCode by MasterCard are very effective in preventing many chargebacks (like the ones where they say they didn’t order it). However, they are barely being used and, unlike common belief, they don’t prevent all chargebacks. But they definiely are a welcome thing for online merchants.
You’re right stymiee, but my main point was that it’s not the Verified By Visa or SecureCode that are preventing the chargebacks but rather the “Liability Shift” option, once you get a “Yes” classification you are safe from any kind of chargeback as long as you (the merchant) are not at fault. We’ve been having a chargeback free run which is nothing short of amazing, true that owes more to our in house security and customer service dept. but Liability Shift option has helped us greatly.
However, in support of what you said, I must admit that not all Verified By Visa or SecureCode orders do get a “Yes” classification in Liability Shift. And you are absolutely correct when you say that they are barely being used, it seems that both Visa and Mastercard are taking their time in making this mandatory when it should be and quite frustratingly, the other credit companies have yet to set up such security measures.
The corporate world must act faster to implement such security measures which are widespread but they are taking their jolly time. I suspect they are making more money this way. Just think about it, if you get a chargeback, you get a penalty fee, if you refund the order to avoid the chargeback, you get a “service charge” which is nothing short of a penalty fee too!
Glad to hear it is successful for you. Hopefully others will get to enjoy the success you have had. If you know how to get other merchants involved with the program, please share with us (in a non-self-promotiomal way if possible).
By all means I’d be happy to. If there’s anything specific information I can provide I would be very happy to. I would highly recommend the merchant account provider I work with though who I listed in the earlier post as we are completely satisfied with their service. But I must inform my colleagues here that nothing beats having a full security dept. do the detailed verification of orders.
2004 was considered a huge success in the Industry for implementation. There were many large companies that trailblazed these programs for Visa and MasterCard. There were so many problems with the software they eventually shut it off due to high abandonement rates. Almost all the original problems have been remedied and we are seeing many of these ultra large merchants working with with us, who had originally turned off the programs.
Card-holder participation is also up along with merchant participation.
Hopefully this momentum continues in 2005 and beyond. Those programs are the best hope yet for merchants against chargebacks. They blow away Address Verification and CVV2.
Even though MasterCard and Visa have had a reputation to abandone programs in the past, these programs have been chosen as the way in which Visa and MasterCard will elimintae the cardholder-not-present transaction.
Almost 50% of all credit purchases are done in the CNP enviroment. Fraud costs everyone billions of dollars and by putting the liability squarely on the shoulders of the cardholder, it will eliminate bank and merchant liability much in the same way as a an ATM withdrawl works.
MasterCard works from the “consumer” angle. MasterCard has recently mandated that banks must begin enrolling thier card-holders in SecureCode or risk being fined. So SecureCode only protects on enrolled cards.
Visa still comes in from the “merchant” angle by granting blanket coverage on all cards regardless of enrollment.
Each Payment Netwrok is coming from a different angle and will most likely meet at a comfortable apex.
The question though is when? Action has been very slow and, with my sincere respect to you, the general consensus among online merchants is that merchant account providers are going to the jugular. Admitedly there probably are a lot of cases where the merchants themselves are at fault.
The lack of, or more correctly, the slowness to adapt a secure standard and same legal rights and protection for online merchants as brick and mortar merchants has been monumental. I suspect we would not have such a standard for the next few years at best and that is not good news neither for existing online businesses nor for startups.
Do you remember when ATM’s first appeared? It was almost 20 years ago when the first ATMs went into place, and at the time they where a type of novelty. Understanding the importance of ATMs now, and the fact that you can find one in every gas station signifies our reliance on them. You would have to think it would have taken less than 20 years to accomplish this type of industry change.
What is going on now in the payment inustry is similar to turning a battleship. We are trying to eliminate the CNP type transaction. This will save the world billions of dollars. The financial and payment industry is very slow to change and the adoption of these programs is evidence of it. Visa and MasterCard are simply a conglomeration of banks and they function as thus. It will take some time but eventually all these entities will be able to line up. The only way you can help as merchants is to start running these programs. The banks and payment processors are almost 100% in compliancy. What is needed now is merchant adoption.
I got an interesting piece of spam today relevant to this topic. I won’t post the URL, but the company was offering a Flash program that imitates signature functionality. Basically, the customer uses their mouse to draw their signature, and then submits it along with their order.
Would something like that have any significance in a chargeback case? I can’t imagine the signature would look any worse than the electronic signatures at supermarket self-checkout lanes, or the electronic signatures used when signing for a package.
