Credit Card Chargebacks & Fraud

We love data (and honesty) here at Thinkific, and we've had some great questions recently about issues like credit card chargebacks and fraud. So, rather than speaking in generalities, we pulled the data. 

The short answer (and the good news): chargebacks and fraud are really not big issues for Thinkific instructors. But don’t just take our word for it; we ran the numbers. 

At the highest level: 

• We looked at $2 Million in recent transactions to be sure we had a good sample size (offset to ensure time had passed for chargebacks to occur, for accuracy)
  
  
• Chargebacks are transactions reversed for a variety of reasons, including possible fraud. Visa & Mastercard consider 1% to be the threshold for these. For Thinkific customers, the average chargeback rate on our system is 0.1% (or one in a thousand transactions). It’s extremely low! 
  
  
• Failed transactions are different than chargebacks, and occur when an attempt to pay you (the creator) fails at the time of purchase. Failed transactions are frustrating, as you can see a student is trying to purchase but can’t. Normal failure rates for credit card purchases online are typically in the 10-15% range across any platform. This figure ends up artificially high though, when the same student tries over and over to re-run the same card. 
  
  Instead, what we’re more interested in is unique failures: how many students tried to purchase, but left without completing a successful transaction?
  After we remove duplicate transactions and folks who subsequently had a successful payment, the rate of complete failures across the $2 Million in transactions we looked at was just under 1%. Anecdotally, when speaking with our own customers with failing transactions, about half tend to be over limit issues, and the other half aggressive bank policies. As a whole though, a very small percentage of transactions. 

What can you do to ensure you maximize transaction success and reduce risk? 

• Most purchasers (about 90%) with a card that doesn’t go through on the first try will try a different credit card, which is usually the fastest route to success. You can also offer PayPal as a secondary purchase option. If your students contact you, their best chance is to use a different card, or contact their bank to find out why their transaction is being declined. If you’re in a different country from your student, their bank may have stricter rules about what they accept or don’t accept. Unfortunately, a small percentage of purchasers won’t be successful (on our platform, that tends to be less than 1% overall).
  
  
• How can Thinkific maximize payment success? We already require CVC (the 3 digit security number found on the back of your credit card) on credit card purchases, and according to Stripe, this combined with card number and expiry are the primary factors that the customer’s bank uses to accept or decline the transaction. 

Does PayPal have a higher success rate? 

• No! In fact, our data shows us that PayPal has a much lower conversion rate than Stripe payments, as purchasers are taken away from your site/branding, and they’re asked to setup a PayPal account, along with other barriers. The difference though, is that you won’t see the failure rate with PayPal - they ONLY show you the successful transactions. This means that, unlike Stripe, you can’t see which students struggled with checkout.
  
  To corroborate, one external report shows 12% failures for Stripe and a high 20% failure rate for PayPal, for a similar platform to ours.

Help! My chargeback rate is really high, and I want to take steps to reduce it. 

Note: we don’t know of any instructors on Thinkific who are over the Visa & Mastercard thresholds for chargebacks. If that ever happens or if you’re concerned though, read on! 

• Chargebacks are transactions reversed for a variety of reasons, including possible fraud. Visa & Mastercard consider 1% to be the threshold for these. For Thinkific tenants, the average chargeback rate on our system is 0.1% (or one in a thousand transactions). It’s extremely low!
  
  
• Chargebacks occur when your customers (or their banks, on their behalf) reverse credit card transactions. Commonly, this happens if their credit card is compromised, and all recent transactions are reversed. This also happens when the purchaser reports the transaction as fraud/unauthorized to their bank.
  
  
• The number one way to prevent or reduce chargebacks?Deliver what you promise!
  Instructors who don’t deliver on what they promised purchasers/don’t honour refund policies, are likely to have a much higher chargeback rate than instructors who have great relationships with their students. This just makes sense!
  
  
• When a chargeback is filed, as the merchant you have the ability to refute the claim. This means gathering some data and sending it in. Statistics vary, but it’s estimated that only approximately 40% of chargebacks are closed in favour of the merchant. Unfortunately, this means that data isn’t always enough.
  
  If you are faced with a chargeback, here are some hints for what to send in to prove the student accessed your course legitimately:
  
  
  • Student activity data (from our own system, and from tools like Mixpanel)
  • Any emails back and forth with your student
  • Discussion forum access/comments (especially if they used their name) and even if they’ve claimed their certificate (or possibly added it to LinkedIn).
    
    We have a limited number of chargebacks in our system, but creators who have been successful in refuting them have used data like this to do so.

• If you are concerned about your own chargeback rate, you have the option to force Stripe to decline transactions where the customer’s CVC doesn’t match. That said, it’s important to note that once done, you will not be able to see failed transactions where they’re failing for this reason in your Stripe logs. This will make it appear that you have fewer failed transactions, but what it really means is that they’re failing earlier in the process, so they never even show up. Declining transactions for a mismatched CVC can also incorrectly capture valid transactions, so is recommended only if you have an abnormally high chargeback rate and are trying to reduce it. Do this with caution! Many of the transactions declined for CVC mismatch are legitimate, so doing so will likely increase your unique purchaser failure rate. 

What about AVS data? 

• AVS (address verification data) is primarily used not to authorize transactions by the bank, but for merchants to verify that the address they’ve been given to ship goods to matches that of the credit card. We’ve never introduced AVS matching in large part because we’re not a platform for shipping physical goods. Normally, if a chargeback occurs, merchants who have shipped physical goods to customers will be out the cost of the products they provided, making AVS relevant for those merchants.
  
  
• AVS only works for Canadian, American, and some UK credit cards. It is not a global program. As such, it absolutely cannot do anything to limit fraud from other countries.
  
  
• Even for legitimate transactions, customers entering their own address information frequently get mismatched results. This article shares that AVS matches typically are in the range of just 40-80%, and that of those transactions that are declined due to AVS mismatch, only a small fraction were actually potential fraud (!). As an instructor, if you were to force AVS matching for your purchases you would be potentially denying 20% (or more) of your legitimate transactions, to offset a fraction of the average 0.1% chargebacks we see on our platform. 
  

For Thinkific Payments

•  Thinkific Payments currently does not have a feature where creators can respond to disputes and chargebacks. However, Thinkific Support will reach out when a chargeback occurs and work with you to investigate and dispute on your behalf.

• Thinkific Payments does check credit card CVC's, but it will not decline the charge if the check fails. 1.4% of payments had a CVC fail of which $24,000 worth of processing was successful and no disputes. Creators cannot toggle this control, so reach out to Thinkific Support and we can enable a rule to block CVV fails for specific Tenants if requested. 

If you run into issues with chargebacks or failure rates above the averages we've identified here, or have specific concerns about a transaction, please do reach out to us and we'll be happy to help!
We hope this helps clarify chargeback and fraud issues. Please contact us if you've got any questions at all. We take security and credit card processing extremely seriously, and want to ensure everyone is successful in their online businesses.