Chargeback Prevention

eCommerce Chargeback Reduction - 7 Effective Tips

7 Effective Steps for Avoiding Online Chargebacks

Table of Contents

  1. What are online payment chargebacks?
  2. Follow payment processing protocols
  3. Use a recognizable merchant descriptor
  4. Prevent chargebacks with customer service 
  5. Use fraud prevention tools to check for suspicious orders
  6. Maintain complete records for representment
  7. Make sure your customers understand your policies
  8. Set realistic expectations with your customers
  9. How to prevent eCommerce chargebacks
  10. How do you solve a chargeback problem?
  11. How long does a chargeback dispute usually take?
  12. Do chargebacks cost money?

eCommerce is essentially a chargeback minefield. With every card-not-present transaction, opportunities arise for friendly fraud, deliberate scams, buyer's remorse, and countless other situations that can result in a dispute. Merchants with too many chargebacks can face serious consequences above and beyond the loss of revenue from the transactions themselves, so it's important to know what you can do to minimize the number of chargebacks coming your way.

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

Preventing chargebacks is not a singular task, but rather a project that spans a number of different areas:

  1. Fraud prevention. Not only is fraud a major problem for cardholders, but it also hurts eCommerce merchants who must bear the costs of true fraud. Fraud prevention is your first line of defense against chargebacks.
  2. Customer service. Some of the reasons customers initiate chargebacks include poor customer service experiences and confusion about purchases. By helping customers with any questions or issues they might have, making sure customers understand what they're buying, and having a transparent and generous refund policy, you can prevent some chargebacks. 
  3. Representment. If you are facing a chargeback that you believe to be fraudulent, you can take the case to representment and submit evidence showing that the transaction was legitimate and the cardholder's claim is false. This won't prevent the chargeback from going on your record, but will recover some of your lost revenue.

Since eCommerce merchants are especially vulnerable to chargeback issues, let's go over the basics of online payment chargebacks as well as some best practices and strategies for preventing them.

What are online payment chargebacks?

New call-to-actionFor those not familiar with the term, a chargeback happens when a cardholder contacts their bank to ask them to reverse a transaction.

If the bank agrees, it will credit the cardholder the amount of the transaction and send a chargeback to the merchant's bank, which will withdraw the amount from the merchant's account.

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 simply chargebacks for transactions made online. These 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, at least when compared to a physical credit card.

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-processing 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 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. 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 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 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.

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

Use fraud prevention tools to detect suspicious orders

There are a variety of fraud prevention Download the eGuide, 4 Reasons to Hire a Chargeback Management Companytools 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 eCommerce 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.

Make sure your customers understand your policies

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 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 eCommerce 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.

Tools like Order Insight can also be used to give issuing banks more information about transactions, helping satisfy customers who don't recognize them.

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 do you solve a chargeback problem?

Identify where the problem is coming from — legitimate fraud concerns, poor fraud prevention practices, or poor customer service — 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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