Chargebacks are the arch-nemesis of internet merchants. Not only do they cause you to lose revenue and incur fees, but they count as strikes against your merchant account that can accumulate to trigger penalties, including stiff fines, your inclusion in Excessive Chargeback Programs, and even termination of your merchant account.
Preventing chargebacks, therefore, should be a high priority of your business. It’s true that you will never completely eliminate them. However, you can often dramatically reduce them and chargeback disputes by understanding their causes and taking steps to safeguard against these situations.
One of the most common reasons for chargebacks is fraud, and this trend is likely to rise with the advent of EMV cards in US, which are difficult to counterfeit, but no more difficult to hack once the numbers are stored in a digital database.
Preventing criminal fraud requires a multi-pronged attack that should at minimum include address verification through an AVS system, security code verification (CVC, CVV, CID), and manual review before submitting orders for processing. It’s also strongly advised to heighten security through IP geolocation, device fingerprinting, and evaluation of user behavior. Software does most of this for you. Yet, there is never any substitute for manually going through questionable orders, chargeback reason codes, and looking for red flags, such as shipments that are going to unusual locations for the type of product that was ordered, or a single user placing large orders for easily-resellable items.
Friendly fraud happens when a potentially-legitimate customer uses his own credit card to make a purchase, but then claims the product or service never arrived, arrived damaged, or the service was not rendered, in order to keep the item and recoup his money through a chargeback. The best way to prevent this kind of fraud is to ship packages with delivery confirmation or tracking numbers that can prove the time and place of arrival. Also keep all correspondence with each customer for backup just in case one of them is filing a chargeback in the future. Social media can also prove to be a valuable ally, since a surprising number of fraudsters are not shy about posting pictures of themselves with their booty. This is true with digital goods as well, when was the last time they logged into their account?
Honest confusion over a charge on a credit card statement can also lead to a chargeback. If a cardholder does not recognize your business name in the descriptor, they don’t recognize the transaction amount, or if you fail to include a phone number people can call, or other contact information, they may assume the charge is fraudulent and initiate a chargeback, even if it was legitimate.
Customers may initiate a chargeback with their issuing bank over an item they believe has gotten lost in the mail or an order that was charged, but never fulfilled, including digital products. Always provide an on-site and e-mail confirmation when an order goes through and when it ships. Customer service is important. If there is a delay, communicate that to your customer immediately and let them know when the next shipment is supposed to arrive. It’s a simple step toward dispute resolution.
While the card associations do not allow chargebacks for just any situation where the customer changed his mind, if the product is “significantly different than described,” card owners can charge back the fee. You can greatly reduce this kind of chargeback by making sure that your descriptions are thorough and accurate and that you include large, professional photos, including close-ups, of your product from different angles. Also setting clear expectation about your product will help as well!
Although customers are supposed to use chargebacks as a last resort after they have tried to work with your company to return the product, sometimes they get frustrated if they cannot find your return policy or it seems too restrictive or complex. If this happens, they may find it easier to simply initiate a chargeback. Guard against this situation by making your return policy prominent on your website and by offering fair and generous terms. You also need to make it easy for a customer to contact you and give a confirmation number on any refund right away.
And as always, if you need help with chargeback reduction, are looking for a merchant account that accepts businesses at higher risk for chargebacks, or are looking for ways to combat chargebacks caused by fraud, give us a call at 1-800-570-1347. We’re always happy to help!