Dealing with chargebacks on your own can feel intimidating at times. It is your responsibility as a card-not-present merchant to address this growing danger. Regardless of the cause of the chargeback, it depletes your money, uses up your resources, and jeopardizes the future of your company.
However, the majority of merchants see chargebacks as an unavoidable aspect of doing business. Merchants think that disagreements with clients will constantly arise. With that mindset, controlling chargebacks appears to be difficult or maybe not worth the effort.
Defining Chargeback
Chargebacks are an attempt to stop fraudulent payments.
If the cardholder discovers a transaction they didn’t authorize, they can ask for a refund. This happens in a more complicated way.
Cardholders have the option of reporting a fraudulent purchase or a retailer error. The cardholder may also be the victim of friendly fraud if they don’t recall making the purchase, fail to recognize that someone they know made the purchase, or request a refund to object to a business policy.
Why Does a Chargeback Occur?
A chargeback can originate from a variety of things, from genuine fraud to dishonest customer motives. Chargebacks typically occur for one of three reasons:
true fraud
Using the information of valid cardholders, fraudsters made purchases. When the actual cardholder notices this transaction on their bill, chargeback requests are submitted on the debit/credit card statements.
Negligence or mistakes made by the vendor
The seller made a billing error by overcharging the consumer without correcting the problem, shipped an item that was defective or different from what was ordered, or didn’t ship an order at all. When the purchased item is not delivered, the authorized cardholder files a chargeback on the transaction.
amiable fraud
According to industry jargon, cardholder fraud happens when the cardholder is also the fraudster at the same time.
Why Chargebacks Should Be Decreased
Chargebacks are a significant issue in today’s intricate payment economy. Chargebacks are equally difficult for firms to manage and expensive.
- Lost time and resources: Using dispute resolution, one can contest a chargeback. We have a disagreement with the cardholder, your business, and the bank that provided the card. The effect on your work force and human resources could be significant.
- Product and profit loss: If the chargeback is approved due to payment fraud, you could lose both the product and the sale’s earnings.
- Administrative expenses: The chargeback fee is now the business’s obligation. There will also be a network fee.
- Increased card processing costs: If your chargeback rate is high (often over 1% of all transactions), card networks will view your company as high-risk. Additionally, a monitoring program will be put in place, raising your operational costs.
Tips for Preventing Chargebacks
Avoiding chargebacks completely is nearly always preferable to fighting them. You may prevent chargebacks by taking the time to set up your merchant account, payment gateway, and sales procedure, as well as by training your staff. You can significantly lower the number of chargebacks you get if you do this right.
Without professional advice, you’re likely to make just as many mistakes as progress because this procedure isn’t obvious. Here are some incredibly helpful suggestions from our experts to assist you minimize the number of chargebacks your company experiences.
Discover the source
Look more closely. The three causes of chargebacks—merchant error, criminal fraud, or friendly fraud—are ultimately what cause all of them.
To successfully combat chargebacks, you must first determine which of these three issues is at fault. It’s not as simple as it seems.
When a cardholder files a chargeback, the card issuer adds a reason code. The bank can explain why the transaction was reversed using this code. Numerous variables, such as the expansion of internet commerce and online fraud, have made the reason code system problematic. However, since it displays the stated reason, it might not accurately reflect the real reason a claim was made.
Your front-end fraud filter should be calibrated.
The key to avoiding fraud and unlawful chargebacks is front-end transaction scoring and filtering. The issue here is that it is quite simple to use the filters too broadly, which results in false positives.
The majority of chargebacks that merchants get will be successful in the Response process even if they are coded as unauthorized or fraudulent because they are chargeback fraud or friendly fraud. 56 percent of the chargebacks that are classified as Fraud/Unauthorized are won by us.
Deliver effective client service and clear guidelines
Encourage your consumers to get in touch with you directly if they have an issue with a purchase as this is one of the best strategies to prevent chargebacks. Before a chargeback happens, you have the chance to contact the client and work to address the issue by processing a refund or issuing a credit, so avoiding a chargeback.
The merchant’s policy also needs to be clear and understandable. They should be able to identify payment descriptions, such as billing information, to prevent misunderstandings.
Avoid taking reversible payments.
As the name implies, some payment methods do not allow for a reversal of funds. Cryptocurrency and online bank transfers are appropriate options for high-risk use cases. Only allowing non-reversible payment options to customers who have a history of several chargebacks and who are therefore more likely to be fraudsters may be advantageous to your organization.
Even if chargebacks are not irreversible, the member protection plans provided by some payment systems can aid in their prevention. Alipay is one illustration of this. The business pays customers when transactions are made without authorization. The only loss for retailers is in revenue.
Make sure it is recorded.
It is crucial that you make clients sign contracts in order to safeguard your company. The services you will offer should be specifically outlined in contracts. No one ought to make an exception.
When it comes to signing, you should give your customers the following options:
- returning the completed contract to you via fax or email
- a digital signature using a fingerprint
- Every time you file a return, you should have supporting documentation:
- images taken from the product page after purchasing
- Description of the customer-agreed return policy Original, undamaged proof of delivery
- Confirmation of the purchase (with evidence that the correct item was shipped)
- Last but not least, make sure that your online buying platform is configured such that your customers can see your return, exchange, and other pertinent rules before they ever submit their order.
improved user interface
When they can’t locate the answers to their questions on your website, clients frequently grow irate. The good news is that the issue may be fixed with a few straightforward adjustments.
- Give as many details as you can about the product.
- Ensure that shipment details are clear (pay close attention if your shipping delays are prolonged).
- Present accurate pictures of your products and even make videos.
- After each milestone is reached, give customers updates.
Make it simple for customers to contact you
There are many different ways to communicate today. It doesn’t matter whether you like phone calls, emails, or live chat better. Make sure your contact information is prominently displayed online and that you swiftly reply to inquiries from clients.
You might need to hire more staff to handle seasonal spikes in customer demand during peak times like Black Friday or Cyber Monday.
Be sure to record every transactional detail.
Even if you lack real-time monitoring capabilities, it makes sense to record as much information as you can. Transaction information is the proof that is needed in chargeback disputes.
In some circumstances, you can just name everything in a tidy spreadsheet and export the information to the best chargeback management program.
Last but not least, some chargeback software even offers pre-configured forms for contesting chargebacks that you can just fill out using your own data analysis.
Inform Your Staff
From marketing to sales to customer service, every division of a business may help lower chargebacks. It is sufficient to be aware of the difficulties and to understand how to avoid them.
Encourage customers to contact your company with their complaints in order to get them resolved before they start a chargeback.
You should train your staff to spot suspicious patterns in addition to teaching them to spot false patterns, flag problematic user profiles, and use automated technologies to find high-risk transactions.
Apply this reasoning to retailers as well.
Keep in mind that offline merchants who take payments through POS terminals are just as prone to chargeback fraud as internet merchants. To avoid chargeback fraud in-person, heed these recommendations:
- Obtain a signature prior to completing a swipe transaction. It could mislead fraudsters and defend you in the event of a chargeback dispute.
- Teach the finest practices to your staff. Do not record transaction information or swipe cards more than once.
- Manually entering credit card numbers is not advised. Chargebacks are frequently caused by human error.
- Never dispose of receipts. In the event that you get a chargeback request, you could need them later.
Set Secure Payment Protocols to Active
The good news is that payment processors are aware of the difficulties posed by chargebacks. Implementing security measures at the checkout has a drawback in that they can cause turbulence.
There are effective practices that can be used even though payment security (and fraud prevention) can be challenging.
- Using Encryption: You should purchase SSL certificates to show that your company is reliable and committed to data protection.
- AVS: It checks to see if the shipping and billing addresses line up. Although it’s not perfect, it might deter less sophisticated fraud efforts.
- 3DS2: 3-D Secure, the most widely used type of payment security, and its follow-up, 3DS2, enable the collection of more data prior to and during checkout. The IP address, transaction history, and transaction amount are all captured along with other data. The payment processor also receives the data in addition to the banks that issue and acquire payments. The analysis of the data takes a short while.
- Some online shops delete the Card Verification Value (CVV) to speed up payments. However, in the long run, it might prove to be a useful tool for chargebacks.
- Using Tokens: The method of substituting randomly generated characters for transaction data. It is harder to steal a card and use it fraudulently when the cardholder’s information is protected.
- SCA: Businesses are required to step up their authentication efforts as a result of PSD2’s Strong Customer Authentication component. The majority of it is secured using techniques like biometrics, one-time passwords, and multi-factor authentication.
Final Reflections
There is no doubting that chargebacks will always be a problem for online retailers.
If you want to increase your chances of reversing chargebacks, it is best to hire a team of professionals. Hire a chargeback management company to handle chargeback disputes if you wish to concentrate on expanding your business.
Being proactive is key to chargeback prevention. If you take proactive measures to prevent chargebacks, you can reduce the likelihood that the market and the payments industry will see you as a high-risk merchant.