Cesar Campos thought chargebacks for fraudulent credit card purchases of $3,000-$5,000 per month were going to be a regular cost of doing business.
Campos, marketing director of Campos Inc. Investments, which operates VapeSociety.com, the affiliated VapeMood.com, and other e-commerce operations, says the 5-year-old business had two employees dedicated to tracking the IP addresses of fraudulent purchasers and verifying suspicious-looking transactions. The result was a slowed-down fulfillment process and not much success in stopping the chargebacks.
Such chargebacks occur when a retailer refunds fraudulent transactions charged to credit cards. This is a problem not only because of the direct loss the merchant incurs but also because interchange fees paid to credit card issuers rise as retailers experience more chargebacks. Interchange fees, which are based on a variety of factors, are the fees retailers pay whenever a customer uses a credit or debit card to make a purchase from their stores.
VapeSociety.com and VapeMood.com sell aromatherapy vaporizers—products that also can be used for various other purposes, including vaporizing tobacco and marijuana. During the 2015 holiday season of November and December, for example, Campos says the company lost about $9,000 to chargebacks. For an e-retailer with annual sales of about $3.5 million, that was a huge financial hit, he says.
Just before the 2016 holiday season, the company tried a new fraud-detection approach. It integrated technology from vendor NoFraud into the two e-commerce websites. NoFraud offers a fraud-prevention service stands between a website and a payments processing gateway, which means that transactions pass through only after they have been scrutinized and approved using an algorithm that works in fractions of a second. The technology is designed to eliminate the need for manual review of orders and to prevent the declining of legitimate customers.
Campos says NoFraud eliminated his company’s chargeback problem at a cost of about $700 per month. That, along with increased holiday sales compared with last year, he says, made for a merry holiday season.
“It’s the best insurance policy that anyone could buy,” he says. Campos Inc. plans to use NoFraud on two new e-commerce websites it has in development, which include a site that will sell vitamins, nutritional supplements and other similar products, he says.
The same technology has also been used by online sports retailer Ambush Board Co. In November, NoFraud announces new integration tools that allow its technology to be accessed via e-commerce platforms that cater to small- and midsized businesses, including Magento, Shopify, WooCommerce, PrestaShop and Pinnacle Cart.
Shoshanah Posner, NoFraud’s head of business development, says NoFraud has two pricing models. It charges e-retailers, including Campos’ VapeSociety.com and VapeMood.com, a per-transaction fee of 10-20 cents, based on the number of sales screened. It also offers an insurance-based model, in which retailers pay a fee of 0.25% of sales in exchange for a guarantee that NoFraud will pay any and all chargebacks.
Posner says the software can screen transactions before they are submitted for payment. But, for users of certain e-commerce platforms—notably Shopify—the NoFraud system checks each transaction after it is processed. In those cases, the retailer has the option of automatically canceling orders rejected by NoFraud.