Chargeback Prevention

Table of Contents

1. How Can Merchants Prevent E-commerce Chargebacks?
2. What Are Online Payment Chargebacks?
3. Follow Payment Processing Protocols
4. Use a Recognizable Merchant Descriptor
5. How Can Customer Service Prevent Chargebacks?
6. How Can Fraud Prevention Reduce Chargebacks?
7. Maintain Complete Records for Representment
8. Set Realistic Expectations With Your Customers
9. What Tools Can Merchants Use to Deflect Disputes?
10. How Do You Solve a Chargeback Problem?
11. How Long Does a Chargeback Dispute Usually Take?
12. Do Chargebacks Cost Money?

Chargebacks are the bane of any e-commerce merchant. Due to the greater opportunity for fraud in card-not-present transactions, these merchants face chargebacks more often and have more challenges when fighting them. While merchants can still fight these chargebacks and get them reversed, chargeback prevention is the best medicine.

There are a number of ways to prevent e-commerce chargebacks, but the first step is always to identify the root causes of the chargebacks you receive. That will help determine where your chargeback prevention efforts should be focused. Once you've done that, you can employ a number of different strategies in combination to address the problems you're facing and reduce your chargeback rate.

Preventing chargebacks is not a singular task, but rather a project that can span a number of different areas. Merchants who want to seriously tackle their chargeback problem may want to seek out the services of a chargeback management firm that offers expert advice and a variety of services geared toward preventing chargebacks and recovering revenue.

For now, however, here are seven basic tips merchants can use to prevent chargebacks:

1. Follow payment processing protocols
2. Use a recognizable merchant descriptor
3. Offer available and helpful customer service
4. Use effective fraud prevention
5. Maintain complete records for representment
6. Set realistic expectations with your customers
7. Use tools to deflect disputes

We'll go over each of these in more detail in a moment, but first, a primer on chargebacks for anyone who might be new to the concept:

Chargebacks are intended to be used when a cardholder has been the victim of fraud in some way, from a stolen credit card to a dishonest merchant. Unfortunately, the process isn't always used for its intended purpose. Online payment chargebacks are fairly common, in part because it's relatively easy for fraudsters to get their hands on payment information or login credentials without the victim knowing about it.

There are a wide variety of tools available to merchants to help them stop online payment chargebacks, and any merchant accepting online payments should be aware of the best practices for fraud and chargeback prevention.

Follow Payment Processing Protocols

Each card network has specific protocols for handling card-not-present transactions. You may be required to capture information like the customer's IP address, use AVS and CVV verification, or obtain proof of delivery for

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

Use a Recognizable Merchant Descriptor

One common cause of chargebacks 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 the customer eventually realizes that the charge is connected to a purchase they made, it may be too late to keep the chargeback from being recorded against your merchant account.

Make sure your merchant descriptor 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 merchant descriptor matches the name of your 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.

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.

Merchants should 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. If customers who forgot to cancel know they can contact you for a refund, you should see fewer of these situations turn into chargebacks.

There are a variety of fraud prevention tools available to merchants these days, including two-factor authentication, device fingerprinting, velocity checking, and tools that use machine learning to identify potential fraud.

Even without the most advanced fraud prevention tools available, there are often red flags that can be used to spot suspicious orders and review them more carefully.

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 is 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 can often contact the cardholder to confirm it was them who made the purchase.

Maintain Complete Records for Representment

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

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 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.

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.

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.

Tools like Order Insight can also be used to give issuing banks more information about transactions, helping customers recognize charges and helping banks identify false disputes.

However, these tools alone won't protect your business completely. Determining the root causes of your chargebacks will reveal what operational inefficiencies your business may have and what you can do to correct them, thereby preventing future chargebacks. 

FAQ

How Long Does a Chargeback Dispute Usually Take?

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