Chargeback Prevention

eCommerce Chargeback Reduction - 7 Effective Tips

7 Effective Steps for Avoiding Online Chargebacks

Table of Contents

  1. Follow Payment Processing Protocols
  2. Use Recognizable Payment Descriptors
  3. Provide Superior Customer Service
  4. Verify Suspicious Orders with Fraud Prevention Measures
  5. Maintain Excellent Records
  6. Make Policies Transparent and Visible to your Customers
  7. Set Realistic Expectations with Your Customers
  8. How to Prevent Chargebacks
  9. What are Online Payment Chargebacks?
  10. Conclusion
  11. Frequently Asked Questions

eCommerce 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.

How can you stop chargebacks? By following best practices in a way that ensures that your customers are happy, your records are thorough, and your business is prepared to push back against chargeback fraud.

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?

New call-to-actionOne of any merchant's priorities should be to stop chargebacks. Stopping chargebacks isn't a singular task, however, but one that spans over multiple areas of your business:

  1. Fraud prevention. Not only is fraud a major problem for cardholders, but it also hurts merchants who honor refunds and chargebacks due to true fraud. Fraud prevention is your first line of defense against chargebacks.
  2. Customer service. Customers may initiate chargebacks for a number of reasons, including a poor customer service experience and misunderstandings about transactions. By helping customers during their purchasing journeys, maintaining clear communications regarding transactions, and keeping the processes for refunds and complaints transparent, you can also mitigate some chargebacks. 
  3. Representment. Here, if you are facing a chargeback that you feel is fraudulent, you can finally dispute it with documentation and providing a persuasive case that the transaction was real and not the result of fraud.
If you're learning how to fight chargebacks, here are seven ways to reduce chargebacks you get from online shoppers. 

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.

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.

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.

Download the eGuide, 4 Reasons to Hire a Chargeback Management CompanyOnline 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.

Verify Suspicious Orders with Fraud Prevention Measures

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.

Maintain Excellent Records

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.

Make Policies Transparent and 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.

Set Realistic Expectations with Your Customers

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.

How to Prevent Chargebacks

Chargebacks are preventable with the correct tools in place. Chargeback prevention alerts stop transaction disputes from escalating to chargebacks by temporarily "pausing" the chargeback. The merchant receives a chargeback alert at the time the cardholder files a dispute with their issuer, and has an opportunity to issue a refund before the chargeback is filed. However, prevention alerts alone won't protect your business. Determining your chargeback root causes will reveal what operational inefficiencies your business may have, and what you can do to correct them and prevent future chargebacks. 

What are Online Payment Chargebacks?

An online payment chargeback is the same as a chargeback, just for an online payment. These chargebacks are fairly common, in part because most online purchases are considered Card Not Present (CNP), which carries more risks due to the card not being physically present at the point of sale. 

There are a wide variety of tools available to merchants to help them stop online payment chargebacks. Online payment chargebacks occur when the cardholder notifies their issuing bank that unauthorized transactions were made or that their credit card information was stolen, resulting in a payment reversal from the merchant.

Conclusion

There are many things a merchant can do internally to stop chargebacks from disrupting their business. By analyzing your chargeback root causes and ensuring you have taken the necessary precautions as a merchant, you can reduce your chargeback load and prevent revenue from being lost.

FAQ

How do you solve a chargeback problem?

Identify where the problem is coming from: legitimate fraud concerns, poor fraud prevention practices, or poor customer services, and start changing your operations to solve that problem first. Then work with chargeback management to maintain those practices.

 

How long does a chargeback dispute usually take?

1-3 months, depending on the chargeback, the reason code, and the card network the chargeback is on.

 

Do chargebacks cost money?

Yes. A chargeback, if not disputed, can cost a merchant up to 250% of the original cost of the transaction in fees, expenses, and lost overhead related to the sale.

 

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