Chargeback Prevention

7 Effective Steps for Avoiding Online Chargebacks

7 Effective Steps for Avoiding Online Chargebacks

E-Commerce is essentially a chargeback minefield.  With every card-not-present transaction,  opportunities arise for friendly fraud, deliberate scams, regrettable impulse purchases, and many other problematic shopping situations that can result in a chargeback on your merchant file. If too many disputes end up in your file, you're going to receive a notice or worse, end up on the match list.

That being said, online shopping is the lifeblood of many merchants.  e-commerce is steadily chipping away at brick and mortar stores. In-person transactions may weed out the vast majority of illegitimate or erroneous purchases, but, of course, shutting down your online sales isn't an option.  What should you do to fight chargebacks then?

Take every precaution available to you to prevent chargebacks. Fight them by addressing their root cause.If you're learning how to fight chargebacks, here are seven things you can start doing right now, to reduce the number of chargebacks you get from online shoppers.

1. Follow Payment Processing Protocols

Each card-processing network has specific protocols for handling card-not-present transactions.  

You may be required to capture information like the customer's IP address, to use AVS and CVV verification, or to obtain proof of delivery for merchandise that you ship. 

Following the correct protocols will help you weed out fraudulent transactions before they're even completed and ignoring them may result in the card network automatically ruling against you, in the event of a chargeback dispute.

2. Use Recognizable Payment Descriptors

One common form of friendly fraud is when a customer doesn't recognize a transaction on their credit card statement and immediately reports it to their bank as a suspicious charge.  

Even if they eventually realize that it's a charge they intended to make, it may be too late to keep the chargeback from being recorded against your merchant account.

Make sure your payment descriptions will be clearly identifiable to your customers.  For instance, if you do business under more than one name, make sure the company name on the payment description matches the name of the online storefront.  Also make sure the description includes a working phone number so that customers have a chance to contact you first before they go to their bank.

3. Provide Superior Customer Service 

The best way to keep a customer complaint from turning into a chargeback is to encourage your customers to resolve their problems directly with you, instead of going to their bank to dispute the charge.  

If it's easy for them to reach you, and you then listen attentively to their complaints and make every effort to provide a satisfactory solution, there won't be any need for a chargeback.  

In almost every scenario, a direct refund will end up costing you less than a chargeback.

Online subscription services are especially susceptible to friendly fraud chargebacks.  Many customers forget to cancel subscriptions before free trial memberships expire, or they let unused subscriptions run on for a long time and then panic, rushing to their banks to try and get months' worth of charges back all at once.  Try to reach out to your customers to keep subscriptions on their radars, make it easy to cancel subscriptions, and be generous, when it comes to giving refunds to customers who are canceling subscriptions they haven't used in months.  By utilizing exceptional service, you should see fewer of these situations turn into chargebacks.

4. Verify Suspicious Orders

Many online orders that are deliberate attempts at fraud or card theft will have various red flags you can spot if you're paying attention.  

Orders that come from foreign countries—especially ones where credit card fraud is rampant—should be carefully scrutinized, as they can often hide e-Commerce security threats.  Unusually large orders, or anything that isn't a "normal" purchase for your type of business, should get a second look as well.  Multiple failed order attempts from the same customer or IP address may be a strong indicator of somebody attempting to make a purchase with stolen cards.

When you feel like there's something shady about an order, you should telephone the customer to confirm their intentions, as well as verify their address and card information.

5. Methodical Record-keeping 

Keep records and backups of all the data you collect when an online order is placed.  If you end up fighting a chargeback, this information can be extremely important for making your case that the transaction was legitimate and carried out properly.

6. Make Policies Visible to your Customers

Be sure that your online ordering system is set up so that your customer will have every opportunity to read your return, exchange, and other relevant policies before they confirm their purchase.  Being completely up-front and transparent about your policies can help prevent confusion and frustration for your customers and will help your case if you have to contest a chargeback.

7. Set Realistic Expectations

While it's only natural to paint your company in the best light and to talk up the best qualities of what you have to offer, you don't want to hype yourself up to the point where your customers feel let down.  Be wary of the gap between the expectations you've created and the reality of what your products or services can actually do.  

Promise only what you can actually deliver, or customers may feel misled.  

Once you've lost their trust, it's likely they'll go to their bank for a chargeback, rather than attempt to resolve their problem with you.

By incorporating these seven simple steps, you’ll be well on your way to reducing online chargebacks.  Having a qualified team behind youas well as effective strategies like these, will ensure you are able to remain focused on further enhancing your business.

Download your copy of An Introductory Guide to E-Commerce Fraud Prevention