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Ashwin702,
To understand how to avoid chargebacks one 1st has to understand how they occur. The ability for a cardholder to call for a chargeback is part of the consumer protection rights offered by the card associations (e.g. Visa / Mastercard) and issuing banks - basically to protect cardholders from unscrupulous merchants charging for services they do not render - and I'm not talking Internet merchants - merchants in general (e.g. I once had a pizza vendor who got the order completely wrong, took over two hours to deliver and still thought he could get away with it as I paid over the phone with my credit card - seeing as we never received the goods I naturally contacted my bank and told them to reverse the transaction).
When the Internet came along just about everybody in financial services were caught off guard - what looked to be a geeky tech fad soon become unstoppable wave as more and more consumers and companies adopted the Net. As always the fraudsters were quick to catch on and soon what seemed like a good idea (allowing clients to pay over the Net with their Credit Cards) became a massive problem - not only for consumers who had their card data stolen, but also for merchants providing products and services.
There have been many attempts by the card associations and issuing banks to deploy a foolproof scheme that could prevent fraudsters (both consumers and merchants alike) from abusing credit cards over the Net. Chargebacks are the one thing everybody in the value chain (merchants, payment providers like ourselves, issuing banks and of course the card associations) want to eliminate.
Over time we have come to realize that dealing with chargeback prevention is an on-going issue which has to be dealt with via a number of mechanisms. It can be done, no doubt, but there is not a simple "here you go" way to do this.
Most professional payment providers like ourselves have devised, and invested in, sophisticated systems over time that analyzes each transaction and performs certain actions in order to reduce the chargeback possibility.
If I were to give you some guidelines I would say the following:
1) before you send any transaction to a bank for processing you should inspect it - not just cardnumber, expiry etc checks - actually REALLY look at the transaction - what IP is it coming from, what's the BIN number, what's the email address, physical address, country and so on - so far that's the easy part - the hard part is having a baseline to refer to - in other words is this a known risky email address / country / BIN number - typically merchants do not have enough base data themselves to make the above work for them as you need millions of records that are continuously being updated from various fraud detection systems to carry enough base data - hence why we as a Payment Service Provider (PSP) actually provide it to our clients as we do have the volumes and ability to make an intelligent decision / risk score the transaction...
2) Next, Visa, Mastercard and JCB have all implemented a payer authentication scheme that aims to protect the merchant from fraud / chargebacks - they all call it their own names (e.g. Verified By Visa, 3D SecureCode etc) but at the end of the day they all achieve the same thing - during the checkout process when a consumer places an order the Merchant uses a technology called a MPI (Merchant Plug-In) - what this does is contact the card associations directories to establish if a) the issuing bank and b) the card holder have been enrolled to participate in the payment authentication process - if so the card holder is prompted BY THEIR BANK for a PIN known only to the bank and cardholder to authenticate the transaction. A fully authenticated transaction carries a "signature" in the MPI and if present this results in a liability shift away from the merchant an onto the issuing bank thereby protecting the merchant from chargebacks. Obviously we do have the scenario where the issuing bank and / or cardholder are not enrolled so authentication cannot take place, in which case you are not protected. Once this process is complete you can decide if you want to still send the transaction for AUTH and SETTLEMENT processing as normal...
Payment processing as evolved over time to being a fairly complex and intricate process - hence why our approach is simply this - let us as a professional PSP outfit deal with it - we have the systems, the knowledge and the experience to manage payments properly - merchants should focus on what they do best, selling their wares, with the knowledge that once the payment process kicks in they are using a professional service provider who's responsibility it is to manage the risk on behalf of their clients. A lot of the time PSP's are compared purely on price, unfortunatley and as with most things in life, you ultimately get what you pay for....
I hope that the above is of assistance to you in your quest to achieve zero chargebacks....
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A way to Avoid Chargeback?
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