7 Tips to Reduce Your Merchant Fraud and Chargebacks

To put it simply, fraud sucks. This is especially true when you’re a small startup who can’t afford to have anything else eat away at your bottom line. Unfortunately, fraud is inevitable. Fortunately for merchants taking pre-orders, fraud is significantly lower. Fraud and chargebacks don’t really set in until shipping begins, and are exponential with in-stock physical products.

When it comes to merchant fraud, you, the seller, are entirely liable. Your supplier, credit card company, or muscular best friend can’t bail you out. It’s up to you to prevent as much fraud as possible, and to develop a system to handle the cases that slip past your protective gates. Having a solid fraud game plan that covers your bases during and after a sale will not only save you money, but reserve other team resources for positive things that matter.

Before we share our 7 best learned actionable tips to protect your business, let’s differentiate between the most common types of fraud.

Different Types of Merchant Fraud

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Fraud (aka Classic Con-Artist Fraud)

This is the classic fraud type you think about when you hear the dirty 5 letter word. As a merchant, it can take on many forms, but is always an intentional deception on behalf of the “buyer”. The most common example of this type of fraud is when a stolen or fake credit card is used to make a purchase in your online shop. With this type of fraud, you have almost zero chance of recouping the dollars lost--especially if the credit card is stolen. Prevention is your only defence.

“Friendly” Fraud (aka The Passive-Aggressive Buyer)

Friendly fraud exists in the form of the dreaded chargeback--when a buyer asks their credit card company to remove the charge. This type of fraud may or may not be intentional from the buyer’s end. It’s often summed up as “buyers remorse”, but can also justly occur when the buyers feels like they didn’t receive what was promised. With a chargeback, the buyer’s credit card company investigates, and will make a ruling to remove the charge or keep it as-is.

As merchants, disputing buyer chargebacks will cost you between $0-$100. The worst part of all: the fee is generally non-refundable and merchants lose most chargebacks. This can be frustrating, costly, and shake your faith in humanity.

Read on to learn our top tips and hustle your way out of buyer fraud.

7 Tips to Reduce Your Merchant Fraud (Saving Dollars and Sanity)


1. Manually Approve Each Transaction (at First)

We know, it’s tedious. But, by manually reviewing each order that comes in, you’re not only doing the single best thing to prevent fraud, but you’re setting yourself up for a more fraudless future.

By keeping a close eye on your transactions, you can prevent bad behavior, understand the key ways fraudsters are manipulating your system, and will eventually be able to automate the process as you collect more data (we’ll get to this automation business in a little bit).

The key points of data you want to review are:

Shipping Address
Phone Number
IP Address (geolocated)
Order Size ($ & Quantity)

Groom through your orders, look for patterns and any weirdness, then investigate. This is the most important first step to reducing your fraud, and most other actionable tips are built upon this initial human review.

2. Cross-Check Red-Flag Buyers via Social Profiles

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Thanks to social media, it’s easy to see if a suspicious buyer’s story checks out or not. By using a plug-in like Rapportive, you can automatically pull the social accounts of your buyers. This will a) prove whether or not your customer is a bot and b) allow you to cross-check their profiles with the other information you have about them. If they’ve used a fake name, are linked to a different email address, or reside in a country that differs from the shipping address, hold the phone. It’s time to follow-up with that buyer to iron out these inconsistencies.

**Celery Tip: **In the Celery dashboard, check to see that the buyer’s name resembles their email address. If name and email have zero connection, or the email address is made up of random characters, it’s worth looking into.

3. Different Shipping Address to Billing Address? Investigate.

This is one of the most identifiable red flags we come across. If you have a buyer who has provided a different shipping address to the billing address on their credit card, it’s time to get the magnifying glass and notepad out. There are certainly numerous legitimate cases where addresses don’t match up, but when it comes to fraud, the rate of mismatched addresses is very high.

To cross-check, google the street address, and check the white page results or use safecaller.com to see the geographical location of the provided phone number. If you confirm some major discrepancies, it’s time to either cancel the order (a potentially bad customer-service move) or contact the buyer via phone or email. Have the buyer confirm the order items, their name, and the shipping address. If you’re not convinced, you have a decision to make whether you want to side towards customer service or fraud prevention. This decision should be made using risk calculation with respect to the order size, frequency of fraud and your runway.

Celery Tip: Since our checkout only prompts buyers for shipping information (because fraud is negligible for pre-orders, billing address isn’t required), you’ll need to cross-reference the billing country of suspicious buyer’s inside your Stripe account. Stripe records the credit card country code, so between the two platforms, you can easily catch mismatches and determine who to follow-up with.

Here is an example of a solid follow-up email to double-check a buyer's identity:

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Once, Brian passed REI's security questions, he received this friendly email:

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4. Repeat Orders from Odd Locations or an Atypical Frequency of Orders? Investigate.


Through analytics, you probably have a good idea of your typical buyer profiles: their location, average spend, pant size (kidding) etc.. As you gather buyer data, red-flag outliers become apparent. Fraudulent outliers typically take shape in abnormal purchase numbers being made by the same buyer, same IP address, or shipping to the same address. Additionally, if majority of your buyers are domestic and you notice a surge in international orders to the same country, this is also a major call for investigation.

Knowing who your buyers are will expose who your fraudsters are. If the wide majority of your buyers are within the US and you’ve received a dozen orders from Quebec, Canada, investigate before you ship. If your product is expensive, and suddenly a buyer in Missouri has ordered 6 in one week, get your Sherlock Holmes on. The more you understand your people, the easier detecting fraud will become.

5. Automate Fraud Pattern Analysis

Initially, it’s important that you manually review all of your orders to catch the “hmm” orders. Eventually, after a number of fraudulent attacks, when paired with a fraud detection solution like Sift Science, you can automate the flagging process. In order for this to happen, you’ll need to experience some fraud. You’ll also need to begin manually labelling all fraudulent orders in the solution dashboard. This will improve your fraud detection, and allow the machine learning algorithms that power Sift Science to work their magic.


If you have repeated attacks of a certain type, your fraud solution system will become hypersensitive to the vulnerabilities specific to your platform and customers. This type of real-time fraud solution will grow with you, and stop fraudsters in their tracks.

6. Clearly Label Your Merchant Information for Customer Billing

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Have you ever looked at your credit card statement and been stumped by a mysterious transaction? If you’re anything like me, you’re reaction to this unrecognizable charge sounds something like: “I didn’t make this charge!”, “there’s been a mistake”, “someone used my card!”. However, upon further investigation, chances are a wrongful charge wasn’t made. Rather, the merchant made a mistake by poorly labelling their business name.

Using a nondescript merchant or business name is confusing for your buyers, and can lead to chargebacks. “Unrecognized” chargebacks are even more frequent if your product isn’t being shipped for several weeks or months, or if your typical buyers are businesses.

For example, if your merchant name isn’t clearly defined and a purchase is made by an employee using a manager’s credit card, there’s a huge margin for confusion when the bill rolls in. Label your business simply and clearly and cut-down on chargebacks.

7. Call or Email Customers Who Chargeback

One of the best ways to prevent customer chargebacks is communication. Responsiveness, sending frequent updates, and asking for customer feedback, are all great ways to nip potential problems in the bud--before they blossom into a fully-bloomed chargeback. In saying this, it’s not always possible to catch every issue before escalation. Sometimes, damage control is the next best thing.

Our recommendation is that you (or a member of your team) personally reach out via telephone or email to the customer who issued a chargeback. This way, if miscommunication or frustration were the leading cause of the dispute, you can hash it out and rectify the issue. Surprisingly, we see a lot of issues resolved when merchants spend the time to listen to their customers. Although reaching out to the angry “chargebacker” is probably the last thing you want to do, there are some valuable lessons to be learned, and undoubtedly, some transactions to be saved.

Other Tips

Accept Bitcoin: Seemingly more and more merchants are accepting the digital currency. Why? Well, not only does it carry a certain techie sexiness, but transactions made in the currency are subject to lower transaction fees, and are irreversible. This means chargebacks are impossible. You can also exchange Bitcoin into USD in real-time to avoid falling victim to its tumultuous nature.

Track Your Chargeback Rate and Dollars Lost to Fraud: This is a good thing to measure throughout your merchant history. This way, you know when things have levelled out, and also when you need to tighten up security, and focus more on prevention. In our experience, less than 1% in total transaction chargebacks is where typical merchants should aim to be.

At Celery, we help merchants sell more, securely. Join us as we uncover the best tips and practises learned to help you sell you're way.