How to Prevent Chargeback Fraud and Reclaim Your Profits


How to Prevent Chargeback Fraud and Reclaim Your Profits

Don’t Accept Chargeback Costs as Routine Business Expenses

we focus our prevention efforts on identifying the reason for the dispute to address the underlying problem.

Chargeback fraud.

Words that make even the most hardened merchant flinch.

Chargeback fraud destroys profits and poses grave risks to businesses. They’re particularly harmful to high-risk merchant accounts.

In large part, this is due to merchants feeling helpless during the dispute process. That said, many merchants view the dispute process as unwinnable and chargeback costs as operational overhead.

To a certain extent, this is true. But it doesn’t have to be.

Effectively, the only course of action is prevention. Unlike many payment processors who focus on disputing chargebacks after the fact, at TransSource, we focus our prevention efforts on identifying the reason for the dispute to address the underlying problem. This ensures we treat the disease, not just the symptom.

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What Is Chargeback Fraud?

Chargeback fraud is when consumers initiate a chargeback without a legitimate reason for doing so. There are several reasons for this, but chief among them is consumers believe there’s little chance the merchant will win the dispute. There is some merit to this since merchants only win 22% of disputes.


Is chargeback fraud the same as friendly fraud?

Chargeback fraud is often mistakenly used to mean the same as friendly fraud. However, one key difference exists. Unlikely friendly fraud, chargeback fraud involves intentionally defrauding merchants. Friendly fraud occurs when consumers dispute transactions for seemingly innocent reasons, such as not recognizing a transaction or accidentally purchasing an item.


Reasons consumers may commit chargeback fraud include:

  • Buyer’s remorse
  • The product return date has passed
  • To get out of paying

What Chargeback Fraud Cost Merchants

Merchants lost $31 billion in 2017 due to chargeback fraud, and it’s increased every year since. It has been particularly impactful amidst a global pandemic that has shut down brick-and-mortar stores, making consumers more reliant on online goods and services. For example, according to the 2021 Global Payment Risk Mitigation Report, in 2020, 59% of merchants reported increases in card-not-present fraud, a 21% increase from the previous year.


With the volume up, the cost of fraud also rose 7.3% over the last year. Today, every $1 of fraud costs merchants $3.60, up from $3.36 in 2020 and $3.13 in 2019.


Since the cost of fraud has sharply risen, merchants’ highest priority has been establishing a prevention strategy to identify threats and assess risks. Doing so requires implementing a top-to-down fraud prevention system that tackles fraud before it turns into a chargeback.

Chargeback Management and Prevention Strategy

Protecting your business from chargeback fraud isn’t a singular event. Instead, it takes implementing a proven system with multiple layers of protection. So that if one layer falters, others will step up for added security.


That’s why you need preventive measures that protect against chargeback fraud before, during, and after fraudulent transactions.

Preventive Measures Before the Fraudulent Transaction

Chargeback fraud prevention begins before the fraudulent transaction. You can use fraud detection tools to flag possible fraudulent activity so that they don’t manifest into disputes later down the road.

Scouring Data to Identify and Assess Risks

Payment processors help facilitate the secure exchange of sensitive data so banks and other financial institutions can process transactions. This requires processors to monitor transactional data for anomalies and suspicious activity. Doing so requires a robust algorithm that spots patterns and potentially fraudulent activity. Ways to achieve this include:

  • Have an alert mechanism that detects potential fraud and risky transactions, such as international orders, an unusually high volume order, or a blacklist of consumers known to initiate fraudulent chargeback requests.
  • Set up robust fraud detection rules that block fraud attempts while enabling legitimate transactions to process. 
  • Have large-scale analytics that allows you to analyze and detect patterns while providing valuable insight into what constitutes routine transactions and which raise red flags.

Preventive Measures to Halt Fraudulent Transactions on the Spot

Authenticating card-users information during a fraudulent transaction is key to preventing fraud and chargeback disputes.


Also, since chargeback and friendly fraud are closely related, preventing both will lead to fewer chargebacks.

Have a Secure Payment Gateway with Fraud Detection Tools

While your processing partner analyzes transaction data, the payment gateway authenticates and securely processes the data’s journey from the consumer to the financial institution. So, it’s essential to have proper fraud detection tools to ensure the data is secure en route to its final destination.

How TransSource can help

A reputable processing partner like TransSource follows rigid processing protocols and commits to halting chargeback fraud in its tracks.


TransSource captures consumer information like IP addresses and other information that fraud detection tools flag, preventing the transaction from going through.


Such fraud detection and prevention tools include:


Card Verification Value (CVV) – CVV is the three or four-digit number on the back of your Visa or Mastercard credit card. It’s the first layer of security for card-not-present fraud and is only known by the consumer.


Address Verification Service (AVS) – AVS prevents fraudulent transactions by matching consumers’ shipping and billing addresses with the one on file with their issuing bank. If the addresses don’t match, the payment processor will send a request for verification to the issuing bank.


3-D Secure – 3-D Secure is a level of security that authenticates consumers’ transactions. It relies on sending text messages or emails to verify the transaction.


Fraud Scoring System – Risk scoring tools set parameters and rules to prevent fraudulent activity. These rules measure risks and assess threats, including such parameters as AVS failure test and IP geolocation.


However, while these fraud detection and prevention tools provide layers of added security against chargebacks, our solution, CB-ALERT, is what distinguishes us as the preeminent players in the chargeback management and prevention arena.


CB-ALERT is a powerful chargeback prevention tool that works by consolidating all chargebacks/disputes in one centralized location. It enables merchants to receive alerts as soon as consumers initiate a chargeback, allowing merchants time to issue refunds or dispute the claim before it turns into a chargeback. 


Additionally, CB-ALERT is compatible with all payment gateways and CRM’s. And it’s integrated with Ethoca and Verifi, so you won’t miss any alerts. Even better, you’ll have 72 hours to respond to a chargeback dispute before it becomes a chargeback. High-risk merchants have found tremendous success incorporating CB-ALERT into their business.

Measures to Take After Consumers Initiate a Chargeback 

Even the most advanced fraud detection and prevention tools will not catch all incidents of chargeback fraud. So, inevitably, you’ll need to prepare for the chargeback dispute process.

Keep Up-to-Date Reason Codes

When consumers initiate chargebacks, reason codes let merchants know what kind of chargeback it is. Since reason codes constantly change, maintaining updated codes is crucial to responding to the dispute accordingly. It can be costly if the reason code is no longer valid or adequately updated. Moreover, reason codes help merchants detect patterns to prevent similar chargebacks in the future.

Maintain All Consumer Documentation

The most convincing way to win disputes is to maintain all documentation and consumer records. It’s all about proving intent. Excellent ways to show intent are to have consumers sign the purchase order, email delivery confirmation upon shipping, and keep a log of IP addresses and geographic location.

Respond Promptly to Consumer Inquiries

While chargeback fraud deals with malicious intent, consumers often initiate a chargeback because they don’t recognize a transaction. So, there may be no ill intent, but the chargeback still negatively affects merchants. Therefore, it’s essential to respond promptly to inquiries and engage consumers after they initiate a chargeback.


TransSouce’s VMPI program is a safety mechanism that alerts merchants when a consumer initiates a chargeback. It allows merchants to remind consumers of the transaction, thereby easing their fear of a fraudulent transaction. Moreover, if there’s another problem with the transaction, merchants can resolve it without affecting their chargeback ratio.

Include Detailed Merchant Descriptors

Another effective way to handle unrecognized chargeback transactions is to include a detailed merchant descriptor. Merchant descriptors are the line of copy on a financial statement that alerts consumers of a transaction. The clearer the descriptor, the more likely consumers will recognize the transaction and not initiate a chargeback.


It’s also helpful to include contact information within the descriptor. This solves two problems. First, if consumers still don’t recognize a transaction, they may want to contact the number and speak to a live representative. In doing so, the representative can resolve the dispute before it turns into a chargeback. Second, including the contact information provides compelling evidence that you took appropriate measures to prevent a dispute.

Chargeback Management and Prevention that Encompasses Trust

Fraudsters no longer enter through the backdoor when the front door is wide open.


Gone are the days when fraudsters exploit vulnerabilities in a company’s computer network. That’s because companies spend a lot of money securing their IT infrastructure, and fraudsters know this. So instead, it’s much easier to pose as legitimate consumers and steal money the “legal” way.


This is why it’s crucial to invest in a chargeback management and prevention system that alerts you to disputes before they affect your ratio. CB-ALERT is that system, as it’s designed to prevent fraud attempts from eventually becoming chargebacks.


TransSource delivers in all areas of fraud detection and prevention. But perhaps most importantly, we encompass trust and provide peace of mind knowing your money is safely tucked away and protected. Send us a message, and we’ll walk you through the exact steps entrusted by hundreds of other businesses.

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High-Risk Merchant Account: How to Turn “High-Risk” Into an Advantage


High-Risk Merchant Account: How to Turn “High-Risk” Into an Advantage

Make Your High-Risk Merchant Account Work For You

With the right processing partner, approval is instant, setup is seamless, and credit card processing is fluent - even with a high-risk merchant account.

Don’t let the designation of being high-risk intimidate or slow you down. You may think it’s an unfair judgment of your business. But the reasons for the designation are often due to factors beyond your control, such as industry or longevity. So instead, turn it into an advantage.

With the right processing partner, approval is instant, setup is seamless, and credit card processing is fluent – even with a high-risk merchant account.

At TransSource, we understand what it means to be “high-risk.” We work closely with our clients to offer solutions specific to their needs.

Other advantages with having a high-risk merchant account include:

  • High Chargeback Protection
  • Better Security and Fraud Prevention
  • Custom Support
  • Partnership with Reliable Banks

So try not to fret over factors you can’t control and consider the hidden benefits the right processing partner can oversee and implement.

But before we do, let’s dive into merchant accounts and their role in facilitating transactions.

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What is a Merchant Account and Do I Really Need One?

A merchant account is a type of account that allows businesses to process and accept online payments. On its own, a merchant account doesn’t include any service or technology used to process payments, like payment gateways, software, and card readers. Instead, it exists to store funds while the payment processor verifies and processes the transaction.

That said, you might wonder why you need a merchant account.

A merchant account grants you instant access to funds following a credit or debit card transaction. Otherwise, you’d wait until consumers paid off their credit card bills.

Merchant Accounts for the High-Risk

Payment processors require businesses that accept credit and debit cards to have a merchant account to mitigate risks associated with chargebacks.

It’s to mitigate risks associated with chargebacks, money laundering, fraud, and other illicit transactions. For example, when a chargeback occurs, payment processors assume control over the disputed funds. If the consumer provides appropriate documentation indicating a fraudulent transaction occurred, the payment processor will likely require the merchant account to cover the transaction. Unfortunately, too many of these transactions take a significant bite out of revenue.

Javelin’s research revealed this chargeback process cost merchants roughly $31 billion in 2017. And in 2020, losses due to identity fraud – with a high degree of chargeback transactions – amounted to $56 billion.

As a result, payment processors place certain conditions on high-risk merchant accounts proportional to their level of risk.

What It Means to be High-Risk

Payment processors worry high-risk merchant accounts will cost them money in the long run due to the perceived nature of their business and industry.

Generally, criteria used to determine if you’re high-risk includes:

High Chargeback Ratio – A high chargeback ratio signals unpredictability and financial instability. Chargebacks cost businesses approximately 4.4% of total revenue. Generally, a chargeback-to-transaction ratio over 2% is considered high risk.

Overseas Business – International laws and complex banking regulations raise the potential for fraud. And if a payment processor needs to collect chargeback funds from an overseas merchant, it puts them in legal limbo.

Poor Credit History – For payment processors to invest in high-risk merchants, they need to know their business is financially stable and can pay off its debts.

Longevity – Startups and businesses less than three years old are at higher risk than well-established businesses.

Industry: No other criteria defines high-risk merchants more than its industry. Here are just a few: 

  • Adult entertainment
  • Airlines
  • Alcohol/liquor
  • Auction websites
  • Cannabis
  • Casinos and online gaming
  • CBD oils
  • Cryptocurrency
  • Dating services
  • Financial counseling/credit repair
  • Firearms and ammunition
  • Pharmaceuticals and online drug providers
  • Subscription services
  • Telemarketing sales
  • Tobacco/e-cigarettes/vape

How Being Deemed “High Risk” Affects Your Bottom Line

While there are benefits to having a high-risk merchant account, there are, of course, disadvantages.

You Pay Higher Fees and Processing Rates

First and foremost, high-risk merchant accounts pay higher fees. They do so to mitigate the potential for financial loss. Such fees may include:

  • Setup fees
  • Monthly or recurring fees
  • Processing fees
  • Chargeback fees
  • Risk monitoring fees
  • Early termination fees

High Chargeback Ratio May Result in Closed Accounts

Last, a high chargeback ratio may result in your payment processor freezing or closing your account. While the immediate negative outcome to a chargeback is loss of revenue, the real danger is your payment processor closing your merchant account. And in extreme cases, you may end up on an industry blacklist.

4 Ways To Turn High Risk Into an Advantage

The hidden benefits of high-risk merchant accounts depend on your processing partner. That is, they’re the ones who interact with banks and financial institutions and advocate on your behalf. But, most importantly, they’re the ones who know your business and understand your industry. They sit behind the curtain, working their magic while you’re allowed to run and manage your business.

With the backing, knowledge, and personable touch of a processing partner like TransSource, you can bask in the many benefits of having a high-risk merchant account.

High Chargeback Protection

Merchants are often the ones left footing the bill when consumers initiate chargebacks. That’s because, in many cases, consumers would rather call the number on the back of their credit or debit card to initiate a chargeback instead of following proper protocol to request a refund. When that happens, the payment processor expects the merchant to handle it. Unfortunately, even if the merchant wins the dispute, it loses. It has an upset consumer who may or may not air their grievances in the form of a review, and the merchant must pay a chargeback fee.

TransSource’s VMPI program (Visa Merchant Purchase Inquiry) provides substantial protection against chargebacks. It works by enabling merchants to automatically open dialogue in real-time when consumers initiate a chargeback. It’s not about trying to convince consumers not to initiate a chargeback. Instead, since most chargebacks are due to unrecognized transactions, it’s about easing consumers’ anxiety that the transaction wasn’t fraudulent. Merchants can offer a refund so their ratio isn’t affected.

Better Security and Fraud Protection

All processing partners offer some level of security and fraud protection. They need to because high-risk merchant accounts are vulnerable to fraud, chargebacks, and other security incidents. So it’s necessary to have robust security measures in place.

TransSource employs Visa’s 3-D Secure 2.0, which enables payment processors and other financial institutions to share intelligence and data to verify the authenticity of its merchants and consumers, thereby protecting sensitive and secure information.

Custom Support

Processing partners with knowledge of your industry is necessary in the cut-throat world that defines many high-risk businesses. More than just the tools and software, you need specialists who understand your needs and will put your business in the right hands. For example, TransSource’s account managers provide personalized services that take all the paperwork (and hassles) out of it. The less you have to do, the more you can focus on your business.

Partnership with Reliable Banks

In addition to your processing partner tailoring their business services to match your needs, your partnership with banks is a significant factor:

  1. Since high-risk merchant accounts are prone to chargebacks and are financially unpredictable, the bank must be reliable and understand the merchant’s industry and type of business.
  2. Banks provide credit card processing equipment, software, and other hardware.
  3. Your processing partner will consistently interact with banks and other financial institutions for authorization and security purposes on the merchant’s behalf.

You can rest assured, at TransSource, each high-risk merchant account is backed by a sponsored bank that understands your needs.

What’s Next: 3 Steps to finding the Right High-Risk Merchant Account Partner

Evaluate Your Needs

Evaluating your business’s needs will eliminate processing partners that don’t understand your business and, therefore, will not contribute in any meaningful way. On top of that, it saves you time not researching partners that can’t handle your workload. Make sure only to consider partners that have experience in high-risk verticals.

Do Your Research

Once you assess your needs and eliminate processing partners that aren’t a good fit, research only partners relevant to you and your business. Avoid those with predatory business practices and over-inflated prices. Be honest during the application process and ensure they have a zest for your business and understand the industry.


It’s now time to apply. Fortunately, TransSource’s application process is instant and hassle-free. Our account managers guide you through the process from A to Z. You don’t have to worry about any paperwork or other inconveniences.

Hundreds of high-risk merchants have entrusted TransSource with their credit card processing and merchant account needs, so if you’re ready to make that leap, we’re here. Get in touch with us, and you can see firsthand how seamless the process is.

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What is TransSource?


Here’s what you can expect when you partner with TransSource.

What is transsource?

"We offer a variety of unique solutions as well as exceptional customer service to make your life as a merchant a breeze."

Big enough to serve you, small enough to know you.

TransSource has earned a reputation as the premier online payment processing provider. We’re here to simplify online payments for a variety of reputable, long-standing merchants who have been processing for years. 

Our 20+ years of experience in the payments industry allows us to offer a number of unique merchant solutions as well as customer service that’s second to none. Here’s what you can expect when you partner with TransSource.

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Merchant Accounts for Various Industries

No matter what industry you’re in, rest assured TransSource can help. Over the years, we’ve provided countless high-risk and low-risk merchants with direct merchant accounts. You can trust us to customize your account in a way that meets all your credit card processing needs. Our merchant accounts may be just what you need to expand your online presence and increase your bottom line. 

Quick Approvals and First-Class Customer Service 

You won’t have to wait long to implement a custom payment processing solution. We guarantee a quick approval process so that you can improve the way you operate and grow your business right away. In addition, we offer exceptional customer service to support you every step of the way. 

Online Payment Gateways

At TransSource, we have a team of experienced account managers that can pair your business with the ideal gateway solution. We will recommend an option that will allow your merchant account to fit in seamlessly with your current setup.

Chargebacks and Anti-Fraud Protection

With our in-house solution, you can prevent chargebacks and disputes that take a toll on your business goals. You’ll be able to keep merchant accounts in good standing, increase revenue, and improve customer relationships. It’s the ideal way to safeguard your business. 

Stay Up-to-Date on Our Blog

We invite you to visit our blog on a regular basis as we will update it with the latest and greatest news and insights in the online payment industry. If you would like further information on TransSource or would like to learn more about how our solutions can revolutionize your industry, contact us today. 

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