Chargeback Management

How to Analyze Chargeback Root Causes

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Table of Contents

  1. Why Should Merchants Analyze the Root Causes of Chargebacks?
  2. How Can Merchants Analyze Chargeback Root Causes?
  3. What Are the Most Common Root Causes of Chargebacks?

Every chargeback tells a story.

Sometimes that story is a simple one. Perhaps a merchant accidentally processed the same transaction twice, resulting in a duplicate charge to the customer's account. In most cases, however, the story is more complicated. It may involve fraud, customer service, marketing, or any combination of numerous different factors. Determining the root causes of chargebacks can be a daunting task, but it's one that's well worth the effort.

Why Should Merchants Analyze the Root Causes of Chargebacks?

Analyzing the root causes of chargebacks can provide merchants with insights that can be used to recover revenue by fighting chargebacks, prevent future chargebacks from occurring, and improve overall customer satisfaction.

Manage Chargeback In-House Or OutshoreChargebacks are a significant threat to the financial stability and profitability of many merchants, especially those in e-commerce. While most merchants are painfully aware of the lost revenue they represent, in many cases that amount barely scratches the surface.

“Chargebacks not only equate to billions in lost sales every year, but when you factor in the cost to manufacture, market and ship the product, and the potential damage to merchant accounts, they could mean financial losses of 2.5 times the original transaction value,” said Suresh Dakshina, president of Chargeback Gurus.

In addition to the monetary costs, every chargeback increases a merchant's chargeback ratio. If that ratio exceeds 0.9%, it can result in additional fines and fees from the credit card networks. On top of that, if a merchant's chargeback ratio stays high for long enough, they may have their merchant account terminated.

How Can Merchants Analyze Chargeback Root Causes?

Merchants can analyze the root causes of their chargebacks by examining the reason code of the chargeback and their own records regarding the purchase in question. There are also third-party tools available to conduct advanced analysis.

The old-fashioned way of determining the root causes of your chargebacks involves comparing the reason code of the chargeback, which tells you what claims the customer made, to the detailed records you have on file for that transaction. Any records of past purchases or communication with the customer can also prove invaluable in this effort. Careful study of this information can help merchants infer what the root cause of the chargeback might be.

However, these days there are software tools available that can take the hard work out of chargeback analysis.

Chargeback Gurus’ Root-Cause Analyzer is a powerful solution for collecting data from chargebacks and providing analytics that reveals their causes. The tool uses artificial intelligence—supported by the insights and experience of professional chargeback analysts—to analyze more than 40 data points, detecting patterns and vulnerabilities and providing the insight necessary to prevent future chargebacks.

New call-to-action“E-commerce enterprises using the Root-Cause Analyzer tool can get to the bottom of their chargebacks, rein in revenue loss and understand exactly where chargebacks are coming from and how they affect their customer experience,” said Dakshina.

The Root-Cause Analyzer is available exclusively for Chargeback Gurus customers as part of its full-service suite of chargeback management tools.

What Are the Most Common Root Causes of Chargebacks?

The causes of chargebacks can be broadly categorized as either true fraud, which involves a third party using stolen payment credentials; friendly fraud, which involves a customer filing a false chargeback; or merchant error. More specific causes include poor customer service or ineffective fraud prevention.

In addition to these three basic types of chargebacks, merchants should be familiar with some of the more common contributing factors that can make a merchant more likely to receive chargebacks. Here are a few examples:

  • Marketing. Are you getting chargebacks because customers are disappointed in your products? Your marketing team may be setting unrealistic expectations.
  • Customer service. How much contact do customers typically have with your company before they file a chargeback? Are they unable to reach you easily? Better, more accessible customer service may be the solution here.
  • Referral traffic. Are many of your chargebacks coming from sales you can source to a particular traffic provider? It may be time to reconsider that relationship.
  • Salespeople. If your sales team is pressuring customers into making purchases that they later regret, they might need to be trained to take a different approach.
  • Manufacturing. Low-cost offshore manufacturers sometimes produce low-quality goods, which can lead to customer dissatisfaction and chargebacks.

Analyzing chargebacks can reveal problems in these and other areas that might be hurting a merchant's business in more ways than one.

In addition to the chargebacks themselves, problems like these often lead to refunds, bad reviews, and poor customer retention. Remember, the chargebacks you receive represent only a small minority of your dissatisfied customers, most of which you will never hear from.

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Get the guide, Chargebacks 101: Understanding Chargebacks & Their Root Causes