In-App Purchase Chargebacks: Protecting Your Business

Emails and similar communications can inform cardholders of transaction activity. This can alert a cardholder to an unauthorized transaction — such as a child making an in-app purchase — before too many back-to-back transactions take place, prompting numerous chargebacks.

Such communication can also serve as a digital paper trail for intentional transactions. Customers can compare communications from your company to charges on a statement to more easily identify and accept those purchases. This is especially important if the customer purchased a recurring subscription (for example, ongoing premium access to your app).

Sending purchase notifications also helps you solve potential issues before chargebacks occur. When sending a notification, include information about your refund policy and how to contact your customer support team. Doing so maintains open lines of communication, allowing you to cut down on potential customer disputes.

A customer may not remember making an in-app purchase by the time a billing statement is issued. If the billing descriptor is unclear, a customer can misclassify an authentic transaction — which they authorized — as fraudulent and initiate a chargeback.

Avoid confusion by using a billing descriptor that includes the name and type of the app in the billing descriptor — not just the name of your company.

The ability to purchase in-app currency (such as gems or gold) can help users unlock new features, functionality, and items. It can also create feelings of buyer’s remorse that may prompt an in-app purchase chargeback, particularly if the purchase has a low perceived value.

For example, assume a customer spends $5 to purchase in-app currency, then uses that currency to purchase a sword. However, the sword lacks any special benefits — it doesn’t do more damage than swords that are freely available in-game. The lack of perceived value gives the customer feelings of buyer’s remorse and an in-app purchase chargeback is filed.

Instead, ensure such items come with premium benefits. They may enhance the player’s statistics, help them more easily defeat a difficult enemy, or provide cosmetics that are otherwise unobtainable in-game.

A pay-to-win model allows certain customers or players to bypass in-app difficulty or challenges in exchange for real-life money. Though this can be an effective model for non-competitive apps, it can sour the experience for players in apps where they compete with one another, either face-to-face or on leaderboards.

Pay-to-win models can encourage players to purchase boosts and other items to get a competitive edge. Then, when they’ve defeated their competition or improved their leaderboard positions, they may feel guilty and regret the money spent.

Instead, focus on adding in-app purchases that your customer base celebrates. These items can be cosmetic — helping a player improve a character’s look or the design of a player profile — but don’t have a negative effect on other players.

Sales data and other analytics can provide valuable insights into which pages, buttons, and other features lead to higher rates of friendly fraud.

Once you know what’s triggering chargebacks, you can make necessary updates to reduce risk. For example, perhaps button text could be clearer so the user understands real money is being exchanged. Or maybe you should require a password or account authentication before allowing a purchase.

Fraudsters often take advantage of stolen payment cards or billing information to load up a new app account with in-app purchases. They then sell access to that account to other buyers, likely prompting chargebacks from the legitimate account holder and depriving you of sales revenue.

You can mitigate this risk by restricting purchases from new users. Forbid a new account from making an in-app purchase for a period of days to discourage fraudsters from using your app for criminal activity.

Another suggestion is to require a new user to sign up for an account before access is granted to its functionality. Many marketplaces and services allow you to require customers to link the app account to the account associated with the marketplace (Apple app store, Google Play store, etc.).

This can “lock” the user into a single account that’s unable to be disassociated from your app. In other words, it would prevent criminals from reselling access to your app to another user.