Should You Ban Customers Who Chargeback?

Sydney VaccaroChargebacks4 Comments

Typing Banned

You made it through the painful chargeback process. You either fought it and presented compelling evidence or you just took the hit and and accepted the chargeback. Now that you have put the time and effort into settling the chargeback you may want to just ban the customer so they never have the chance to do that to your business again. Is banning customers who dispute purchases a good idea? Here’s when it is and when it isn’t.

When to Ban

A customer should be banned if they have committed chargeback fraud. Chargeback fraud is when someone is using the chargeback system to steal goods, not pay for merchandise they had previously agreed to pay for, or were unsuccessful in returning the merchandise. These customers are true fraudsters that are trying to take advantage of the chargeback system and your business. Chargeback fraud accounts for 35% of all chargebacks processed.

How to Ban

You have to right to refuse any customer as long as it is not discriminatory. This means a business can not refuse a customer based on race, sexual orientation, etc. If a customer is causing problems for your business, such as committing chargeback fraud, then you should take action and ban them. In the case of chargeback fraud the customer is connected to the purchase through what credit card they used in the disputed transaction.

The easiest way to ban a them is to block the credit card number and the email address if they used one. Most ecommerce platforms have a way to ban a customer from only these two pieces of information. Stripe automatically add the customer to a blacklist when a merchant has to refund a charge because of fraud. Shopify developed a Fraud Filter app which helps prevent fraudulent orders and can block orders entirely.

When Not to Ban

Customers should not be banned if they are committing friendly fraud or have true fraud on their credit card. Friendly fraud is when the chargeback is accidental or misguided. For example, a person doesn’t recognize a charge on their statement and accidentally dispute a transaction their spouse made legitimately. This is actually quite common and typically stems from poor merchant billing descriptors being on file with your merchant account provider.

True fraud occurs when a cardholder’s information is used to make a purchase without their knowledge or permission and is a fundamental reason the chargeback system is in place. When the cardholder disputes this charge it will result in the card account being closed and a new card being issued. Often the most discussed and concerning type of fraud for merchants, true fraud ironically only accounts for roughly 30% of all chargebacks. While most merchants see north of 50% of chargebacks they receive categorized as true fraud by the cardholder’s issuing bank the true rate of true fraud drops significantly after removing instances of friendly fraud and chargeback fraud.  

Customers who issue friendly fraud or true fraud chargebacks do not have malicious intentions and do not deserve to be banned from purchasing at your store or site. They are simply mistaken or are a victim of fraud.

The Risk of Banning

By banning customers that made a mistake or have honestly had their card stolen you’ll be costing yourself some potentially very valuable relationships. Not to mention some frustrated phone calls, emails and social rants. It’s important to consider customer acquisition costs and your reputation. Implementing some good operational procedures for dispute management and customer service will help you in awkward and difficult situations like friendly fraud. 

Consider this scenario from PlayStation Network. Their strict banning policy has their customers feeling betrayed and frustrated. The PSN chargeback policy is if a customer disputes a charge their Playstation account will be automatically banned. When a customer loses their PSN account it also means losing all the games they have already paid for. This extreme policy leaves users with no good options if their account is actually hacked. They either have to deal with the charges on their card or they will have their account banned. This is one of many complaints PSN customers have voiced across various internet sites “My PSN account got hacked this morning. Sony support has given me only two options: eat $450 in fraudulent charges and be unable to use my account for 6 months, or dispute the charges with my bank and have my account banned forever.”

Make sure you only ban customers that commit chargeback fraud.

Customer Service Policy

4 Comments on “Should You Ban Customers Who Chargeback?”

  1. Pingback: General Data Protection Regulation [What Should Merchants Expect] | Chargeback

  2. What do you do if you’re a customer that has been banned and it keeps you from making any online purchases? I disputed a charge for a $100 gift card I bought online that turned out to have a zero balance. How do you get off the blacklist. It’s not just with one retailer.

  3. A lot of people jump to opening a chargeback case, not realizing they are actually shoplifting things, and paypal is to blame for this because paypal makes it too easy and simple to chargeback.

    “Have you already been in touch with the seller? It’s often the best way to resolve a problem” is the only warning-like message from when a chargeback openers see on paypal website, so they tend to believe the money is eventually given from paypal’s vault, not from sellers’ wallets.

    Some people even open a case when they choose a wrong item by mistake and want to let sellers know about it.

  4. I submitted a request to CA states attorney office and BBB. Reporting authorized charges to a credit card company, specially if your not able to contact their call center due to COVID-19, is your right as a consumer. Chat never gave me an option for live chat until I owed them money. Sony is making refunds difficult specially for kids who may have made a mistake. Sony should be sued for consumer fraud and I am going to the new Xbox when launched.

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