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Fraud and Chargeback Risk Profile for Charities


Fraud and Chargeback Risk Profile for Charities

With charitable giving reaching an estimated $390 billion in 2016, nonprofit organizations are scrambling to get their share of this goodwill. One way for charities to make giving easier is to accept online donations. Unfortunately, while this can increase receipts, it also increases charities’ vulnerability to fraud.

Opportunistic fraudsters frequently use charity websites to test the validity of credit card data they have purchased or stolen. The story plays out much like it does with traditional e-commerce fraud: The charity ends up not receiving the income, and when the fraud victims discover the transactions, the charity also gets hit with expensive and damaging chargebacks.

As a result, charities are finding themselves in a bind. On the one hand, they want to encourage  legitimate online donations, which are often twice as large as gifts made through direct-mail solicitations. But on the other hand, they need to protect themselves against the rising threat of fraud and chargebacks.

Let’s dig into this risk further.

What Makes Charities Vulnerable to Fraud

Fraudsters could test their stolen credit card data on any one of thousands of online retail sites. So why do these cybercriminals often target a charity instead?

1. No Account Is Required

To encourage donations, charities strive to make the donation process as frictionless as possible. That often means not requiring donors to establish accounts or create hard-to-remember passwords. But the same simple forms meant to encourage donors also enable fraudsters to quickly and easily test stolen credit card numbers.

2. No Shipping Address Is Needed

Many donation sites don’t ask for the donor’s shipping and billing addresses. While this is designed to decrease the number of obstacles to donate, it also gives charitable sites fewer data points they can use to flag potential fraudulent transactions.

3. Small Donations Are Common

It’s not unusual for individuals to make small donations to a charity — who hasn’t donated $5 to a fun run? — so these donations are rarely flagged as suspicious. But small doesn’t mean safe: Transactions of less than $20 are more than twice as likely as those above $20 to be fraudulent.

4. Donations Aren’t Scrutinized

Charities are extremely grateful for every contribution that helps them meet campaign goals — and even more so for the general donations that help cover operating expenses. But in the process, charities are often unlikely to spend time, money and manpower to confirm the legitimacy of each donation.

How Chargebacks Can Damage Charities

Any merchant who accepts credit cards is vulnerable to chargebacks, and charities that allow credit card donations are no exception. For nonprofit organizations that operate on shoestring budgets, chargebacks — even small ones — can have a significant impact, including:

  • High fees and penalties. Charities are responsible for paying the cost of chargebacks, which can exceed $75 per transaction — a significant amount for any business, but potentially devastating for a nonprofit.
  • Lost donations. The first step of the chargeback process is the automatic refund back to the consumer’s credit card — funds the charity was counting on to serve its beneficiaries. The Jack and Jill Foundation, for example, had to refund more than $170,000 in donations when they learned the donations were made with stolen credit cards. Even worse, sometimes those funds have already been spent, leaving charities scrambling to come up with money to reimburse fraud victims.
  • Reputational damage. Victims of donation fraud may believe the charity’s site isn’t secure enough to identify and reject fraudulent transactions and keep personal data safe, making donors less likely to make future contributions.
  • Lost time and manpower. When charities find themselves the victims of fraud, they must redirect their limited time and resources to addressing chargebacks instead of conducting fundraising campaigns and helping those they serve.
  • Revocation of merchant accounts. If a merchant has too many chargebacks, they risk losing their merchant account, which can be devastating for a charity that relies on online donations.

What Charities Can Do to Prevent Chargebacks

With everything else on the typical nonprofit’s plate, adding “prevent chargebacks” can feel overwhelming. But it’s simply too important to ignore.

Here are a few ways charities can protect themselves against fraudulent transactions and subsequent chargebacks:

Increase Manpower

Nonprofits can dedicate staff or volunteers to monitoring incoming donations and flagging suspicious transactions, like multiple donations from the same email address or numerous small transactions from different cards in a short amount of time.

Clarify the Charity Name

Does the organization name that appears on credit card statements match the name of the nonprofit to which people are donating? If it doesn’t, donors may file chargebacks when they receive their monthly statements and see unfamiliar charges. Avoid confusion by clarifying on donation pages and receipts what charity name will display on statements.

Require Additional Donor Information

Nonprofits might consider requiring a few simple pieces of additional information from donors — like mailing address and CVV — to more thoroughly vet donations and reduce the fraud risk.

Set Minimum Donation Amounts

Requiring minimum donations for credit card transactions may dissuade fraudsters looking to test credit cards with small purchases.

Respond to Donor Questions

Good customer service is essential, even for charities. Make sure someone is monitoring email accounts and social media to be able to respond to donor questions and concerns. A quick, friendly response can make all the difference between a donation and a chargeback.

Remind Individuals of Recurring Donations

Donors who don’t remember they’ve agreed to recurring donations may file a chargeback when they see the charge on their statements. Remind donors of the date and amount of scheduled donations, and promptly process any requested cancellations of recurring donations.

Maximize Donations With a Fraud Protection Solution

When it comes to worthy causes, nonprofits want to spend their time raising money, not fighting chargebacks. Implementing the same robust fraud prevention services as any e-commerce merchant will enable these organizations to prevent fraud before it happens.

ClearSale’s unique approach to fraud protection combines advanced artificial intelligence and a team of trained experts to make sure donations are legitimate, so the money goes to those who need it most — not fraudsters.

If your charity is ready to separate legitimate donors from fraudsters, contact one of ClearSale’s fraud protection analysts today.

ClearSale Fraud Protection Buyers Guide