Common problems with merchant accounts and how to fix them

So you've got a merchant account, hopefully with a dependable payment gateway. What comes next? For starters, you can finally expand your business and begin accepting online payments.

However, risks are lurking in every aspect of our lives, and payments are no exception. And, as a merchant, you must be ready. As a result, we're going to go over some of the most common online payment issues and offer advice on how to deal with them today.

Payment fraud

One of the most serious concerns for merchants. To be clear, payment fraud encompasses a wide range of illegal online transactions. After all, committing financial crimes is easier when no one can see your face on the internet. Multiple lockdowns occurring around the world only added to the unfavourable statistics. Fraud examiners observed a significant increase (31 percent) in global payment fraud in August 2020 and predicted that it would continue to rise (47 percent) throughout the year.

To prevent fraud, businesses must use security tools and reputable payment gateways. But we'll get to the solutions later.

Types of payment fraud

Identity theft

This type of scam occurs when a criminal steals an individual's data and uses it for financial gain, as the name implies. When fraudsters use people's bank card information to make purchases, transfer funds, and so on, most merchants face this online payment problem. This type of fraud is usually avoidable if your online payment gateway offers 3D secure services.

Scammers can even obtain enough information to take out a large loan on behalf of another person, which is terrible news for the latter.

Phishing

The following scam leads to identity theft. Phishing is the practise of criminals attempting to obtain personal information through emails or websites. All it takes is providing your credit card information or other relevant information, and you are unfortunately on the hook for the scammers.

Friendly fraud

This online payment issue causes numerous complications for merchants. When a customer purchases something on the internet but then disputes the payment due to a misunderstanding or malicious intent, this is referred to as friendly fraud.

The problem is that there are various types of friendly fraud, some of which can be resolved but others will cost you:

A customer neglected to make a purchase. This happens by chance. Here's an example: someone bought something from your website. Then, a few days later, they check the transaction history and discover that the payment was not recognised. It could be that your company's name does not match the one on the bank statement, or that the product description is incorrect. As a result, they file a chargeback request. If you're not sure why chargebacks are bad for business, read our article on the subject. We also explain how a good payment gateway service can help to reduce chargebacks.

A relative used a person's payment information. This occurs when a cardholder's family member uses their card to make a purchase. There may be nothing illegal about it, but the cardholder may object to the purchase and cancel it.

A case of buyer's remorse. Customers sometimes hesitate to make purchases. This may cause them to cancel their order later or result in chargebacks.

A deliberate disagreement. This type of fraud is not at all friendly. It occurs when a customer requests a chargeback on purpose. For example, they may lie that they did not receive the product or that it was of poor quality in order to obtain it for free.

Triangulation fraud

This is another way criminals prey on people's financial data, similar to phishing. They create fictitious e-commerce websites or pose as existing businesses, luring customers in with extremely low prices. When a customer enters their information on the malicious website, the scammers steal it.

Pagejacking

Another data-stealing scam, but this time the fraudsters redirect traffic from a legitimate e-commerce site. After that, the traffic is redirected to another malicious website.

Chargebacks

Chargeback is bad news for some businesses: if you get too many of them, you risk losing a large portion of your revenue and putting your company in the high-risk category. Why is this the case?

Chargeback is the process of reversing an electronic transaction – a customer receives their money back if they did not receive a product/service or are dissatisfied with it. So, what's the problem? Unfortunately, merchants must not only refund cardholders' money, but also pay additional fees.

As a result, a refund is a preferable way to return money to a customer because other parties (acquirer, issuer banks) are not involved in the process and businesses are not required to pay chargeback fees.

Merchants should always keep an eye on their chargeback ratio: if the percentage of chargebacks to successful transactions is too high, your bank may discontinue services. You will be classified as high-risk and will have to pay higher fees for using your merchant account and additional features.

Credit card data theft

This is a type of credit card fraud that can occur with any type of payment information used to conduct transactions (debit cards, e-wallet data, etc.).

A criminal steals the cardholder's physical card or hacks into their account/website where the information is stored in order to steal the card data. The fraudster then uses the data to conduct unauthorised transactions in order to purchase goods or transfer money to their account.

Multi-currency payment methods

Fortunately, this online payment issue does not include fraudulent transactions. Multi-currency payment methods refer to a merchant's ability to allow customers to pay for goods and services in multiple currencies.

The good news is that it allows you to significantly expand your customer base. The bad news is that implementing such services is difficult, and you may need to open additional merchant accounts to process cross-border payments.

Solution for each problem

Some methods can help you significantly reduce or eliminate the described online payment issues. Let's take them one at a time.

Payment fraud

For merchants, the most common issue with this type of fraud is the risk of receiving fraudulent transactions, which result in chargebacks and traffic losses.

Several steps can be taken to avoid such unfortunate events:

Turn on 3D Secure. We've discussed the benefits of 3D Secure and how it relates to the PSD2 implementation in the EU. In short, the 3D Secure protocol allows a cardholder's identity to be verified twice when they make an online purchase.

So, when a customer purchases something from your website, they must not only enter their payment information, but also confirm that they have authorised the transaction, either through an OTP, biometrics, or interaction with their phone. Because this verification requires the cardholder's direct participation, criminals find it much more difficult to pass it and thus make unauthorised transactions.

Use anti-fraud software. When you have special services for this purpose, it is much easier to detect suspicious payments. As a result, we recommend that you find a payment service provider or a payment gateway that provides anti-fraud features.

Chargebacks

You can't avoid chargebacks entirely, but you can try to minimise them with your efforts and seek assistance from your bank, PSP, or the best online payment gateway.

What merchants are capable of. As a business, you must ensure that your refund policy is clearly stated on your website – your customers should understand that a refund is preferable to a chargeback for both parties.

Merchants should also clearly state the product description in order to avoid unhappy customers who receive "not-as-described" products. Explain the delivery process to your customers: tell them how long it takes for a product to ship and whether or not they can track it.

What financial institutions are capable of. Banks and payment service providers (PSPs) can provide businesses with additional tools to help them reduce chargebacks and avoid other online payment issues.

It is easier to prevent friendly fraud and chargebacks when a person forgets they made a purchase with Visa Merchant Purchase Inquiry (VMPI). When a client is about to request a chargeback, VMPI allows merchants to be notified. As a result, a company can gather evidence that verifies the transaction in question and persuades the client to reconsider a chargeback.

Credit card data theft

In addition to the fraud and chargeback prevention tools mentioned previously, we recommend that you indemnify your website and services:

• Encrypt the data on your website with the SSL technology;
• Comply with the PCI DSS requirements for merchants;
• Find a secure and reliable payment gateway;

Multi-currency payment methods

If you don't want to open new bank accounts, you can always find a payment service provider or a payment gateway that accepts multi-currency payments.