By continuing to use our site, you consent to the processing of cookies, user data (location information, type and version of the OS, the type and version of the browser, the type of device and the resolution of its screen, the source of where the user came from, from which site or for what advertisement, language OS and Browser, which pages are opened and to which buttons the user presses, ip-address) for the purpose of site functioning, retargeting and statistical surveys and reviews. If you do not want your data to be processed, please leave the site.

How to Navigate Through Chargeback Insurance Options

Chargebacks occur when a buyer requests a reversal of a credit card payment that is issued from the bank. This was created as a way to protect consumers from merchant scams but has since evolved into a way for individuals to commit what is commonly known as “friendly fraud.”

Friendly fraud occurs when a consumer abuses the chargeback process put in place to protect them. This is often caused by an individual claiming legitimate purchases are fraudulent and stealing the product they were given. Once a chargeback has been issued, your chargeback merchant rights become relatively limited. That said, it is important to ensure you are protected by employing chargeback insurance. 

There are several components to consider when it comes to choosing the right chargeback insurance for you. Here’s what you need to know:

How Chargeback Insurance Works

Chargeback insurance protects a business that accepts credit card payments. The idea of chargeback insurance is to protect merchants and retailers against transaction frauds, such as the use of unauthorized credit cards. 

This type of insurance also covers claims resulting due to the merchant’s liability towards the service bank. The insurance coverage will apply under several circumstances, such as: 

  • Illicit usage of lost or stolen debit and credit cards before the cardholder reported the theft of the card

  • Cybercriminals using credit card number generators or counterfeit credit cards

  • Customer making changes to shipping address completing the purchase

  • Mismatched signatures on the file

Merchants can claim chargeback insurance:

  • Over the price of a stolen service or product

  • Over the loss of profit

Typically a chargeback insurance coverage only reimburses losses pertaining to credit card transactions where a purchase happened through the insurance providers' own payment gateway or payment processor. 

With that in mind, it’s important to differentiate between chargeback insurance and a chargeback warranty as they protect you in different ways and can be easily confused. 

Chargeback insurance 

Typically, chargeback insurance protects acquiring banks. Here an acquirer receives chargeback insurance when a merchant goes under while still owing money and chargeback fees. This can be irrelevant from a merchant’s perspective. 

Chargeback Warranty

Businesses sometimes use the terms “chargeback warranty” and “charge insurance” interchangeably. However, in theory, a chargeback warranty is a policy that reimburses you for a fraudulent chargeback. While this is extremely helpful for merchants and retailers, you may find yourself at the receiving end of an unpleasant surprise when you purchase a policy assuming it covers everything when it does not. 

You’ll need to carefully research before choosing chargeback insurance to know what is covered. 

What Coverage Insurance Doesn’t Cover?

There are many benefits to getting chargeback insurance coverage. However, it will not eliminate every problem you might face when it comes to chargeback incidents and frauds. 

Here are a few instances where your chargeback insurance coverage might not protect you.

  • The chargeback insurance only applies when a customer files a chargeback request. Thus, it is best for an insurance provider to set the security filter and parameters high, enabling them to catch more fraud cases.

  • Not all chargeback insurance coverages allow for manual review of the policies. Some chargeback insurance policies do not provide coverage on financial transactions flagged by their system. However, they can later approve them during a post-manual review. 

  • Chargeback insurance will only cover fraud-related chargebacks. A chargeback insurance policy will not cover any chargebacks due to a merchant's or retailer's errors, such as sending damaged or incorrect goods, failing to deliver goods on time or at all, and incorrect recurring payments. So, make sure to check the chargeback codes to help you identify which ones your chargeback insurance policy does cover. 

  • Your chargeback insurance policy will not cover any payment transaction that did not get approval through the company’s tool. But, if a payment transaction gets approved through the company’s gateway or payment processor and still turns out to be fraudulent, the insurance provider will accept the liability for those chargebacks. 

  • The chargeback insurance policy does not cover any orders modified after the payment approval. Suppose a customer contacts a merchant after making a payment to change details of the order, and the merchant agrees to change them. In that case, the merchant will be liable for any losses pertaining to that particular order. 

  • Your chargeback insurance policy may also apply restrictions on certain products and geographical locations. Their e-commerce tools may place restrictions on applying for chargeback insurance in certain extremely risky situations and locations. This includes chargebacks related to certain products known to be amongst fraudsters’ favorite target or certain areas known for higher fraud rates. 

Is Chargeback Insurance Right For You? 

Now that you know what your chargeback insurance may or may not cover, as a large retailer, you should ask yourself two questions before committing to chargeback insurance:

Do most of your chargebacks come from friendly fraud?

Do you frequently find that customers make an online purchase using a credit card and then ask their banks for a chargeback after receiving a product or service? If the answer is yes, you should seriously consider investing in an adequate chargeback insurance policy. 

Do you have a significant amount of legitimate fraud cases?

In instances of chargeback fraud, do they involve identity theft, credit or debit card frauds, etc.? If that is the case, getting a chargeback insurance coverage may help you protect and reduce the number of legitimate fraudulent attempts going unnoticed. 

If you are a large retailer facing other unique incidents that make your business vulnerable to chargeback frauds, you can always discuss how a chargeback insurance provider can protect your interest. 

Prevent Chargeback Fraud before it Happens

Now that you understand how chargeback insurance can protect your business from chargeback fraud, it is still imperative to protect yourself on the front end by employing fraud prevention efforts such as an identity authentication solution. Intellicheck’s ID fraud prevention solutions are one proven method to catch fraudsters early. 

Intellicheck’s ID authentication solution can catch fraudsters with 99% accuracy so you can protect yourself from gaps in your chargeback insurance coverage. Want to start catching fraud in real-time both in-person and online?

Related posts

  • May 18, 2020, 12:00 AM

    Fraudsters have been using money laundering schemes to cover illegal activities for decades. In an effort to cut back the number of people taking advantage of the system, the government has imposed a set of rules and regulations called AML compliance. Anti-Money Laundering Act (AML) first appeared in the U.S. to stop perpetrators from moving money to evade taxes and use it for notorious purposes. 

  • Sep 17, 2020, 12:00 AM

    As somebody who works for a financial institution, AML compliance needs to be one of your top priorities. One of the main AML compliance regulations states that every financial service company must perform identity verification. This is why it’s especially important to make sure that your customers really are who they say they are, also known as customer due diligence (CDD).

    That said, it’s crucial that you closely follow a CDD checklist to avoid fines, criminal negligence, or even a company shut down. Making sure your business is fully compliant with AML regulations is key to protecting both your company and your customers. 

    This checklist will help to ensure your customer due diligence is completely taken care of:

  • Jun 4, 2020, 12:00 AM

    One of the biggest concerns for business owners and financial institutions across the country is protecting their business from fraudulent activity. While it may make sense to cut corners to save money, fraud prevention tactics can save you from millions of dollars in losses, especially ID related fraud cases.

  • Aug 26, 2020, 12:00 AM

    In the fight against money laundering, the Financial Crime Enforcement Network established the Bank Secrecy Act (BSA) of 1970 and several laws thereafter. Anti-Money Laundering (AML) training programs have since been created to ensure that companies understand and conform to these AML compliance laws and regulations. 

    These programs were originally built on four core pillars: the development of internal policies, procedures and controls, the designation of an AML program officer, relevant training of employees and independent training. A fifth pillar, due diligence, was added in 2018. 

    AML training programs are now one of the necessary steps toward securing AML compliance. Here are a few things to keep in mind during the training process:

  • Jul 24, 2020, 12:00 AM

    Fraudulent activity is an issue that affects almost every business worldwide. From major retailers facing in-store and online credit card fraud to banks and financial institutions who deal with fraud on a daily basis, it’s a very common issue that many companies have tried to combat. 

  • Sep 10, 2020, 12:00 AM

    Chargeback fees can cause serious financial damage and also threaten your business’s reputation. Chargebacks do not only refer to returned merchandise or lost sales; the true cost of chargebacks lie in fees that are tied to them.

    Typical chargeback fees range from $20 to $100. Add in the customer acquisition and operation costs (stocking, storing, packing, and shipping) and your business ends up losing almost three times the transaction amount.

    Therefore, it is crucial for you, as a merchant, to take preventive measures to reduce the instances of chargebacks fees. Here’s how you can stay ahead:

  • Sep 23, 2020, 12:00 AM

    Retailers are consistently vulnerable to fraud and theft which can be crippling for establishments of all sizes. Chargeback fraud contributes greatly to the losses businesses incur over the course of their lifetime and are rapidly becoming more problematic. In fact, according to a study by LexisNexis, overall retail frauds have tripled since 2017. 

    The rise in online shopping trends has also ushered in new sets of malicious threats for retailers. That said, the key to staying ahead of chargeback lies in an extensive understanding of why they occur and how you can prevent them. Here’s what you need to know:

  • Aug 28, 2020, 12:00 AM

    A lot of businesses have questions about credit card chargeback merchant rights. To answer that, you must first understand what a chargeback is and how it works.

    In simple terms, a chargeback is a reversal of any credit card payment initiated by the bank that issued the card. This is often used when a buyer feels that the product description is deceitful or they suspect identity fraud, they will contact their bank directly to enforce a chargeback.

    A chargeback is a safety net designed for cardholder’s security. Therefore, you should understand credit card chargeback merchant rights to ensure you protect your business from chargeback frauds whenever possible.