How to Maximize ROI When Fighting Chargebacks
You know that in today's e-commerce environment, chargebacks are inevitable. So why fight them? Is it worth going to the trouble? The truth is, while chargebacks may feel unavoidable these days, there are many sound reasons to fight them—it's not just a matter of principle.
The key is to fight them intelligently and effectively, so that your efforts to fight chargebacks are helping to increase your bottom line, not draining your resources.
There are two big reasons to fight chargebacks:
The cost. A chargeback that succeeds against you will end up costing you two to three times the original transaction amount, when you factor in overhead, operating costs, fees, and other related expenses.
Your threshold. Every payment provider has a chargeback threshold that their merchants are not supposed to exceed. If you get too many chargebacks and exceed your threshold, you might lose your merchant account.
To get a good return on investment when it comes to fighting chargebacks, you need to understand why chargebacks are happening to you and use tested, tailored methods to fight them the right way.
Remember, when you fight a chargeback and lose, you're not getting any return on your investment—but fighting them in an inefficient and costly way, even if successful, still means you're not getting a good value for your chargeback-fighting dollar.
Know Your Reason Codes to Know Your Root Causes
When you receive notification of a chargeback, the first thing you'll want to do is look up the reason code. This will tell you why the chargeback was filed in the first place and help you to compile the right evidence to fight it.
Each of the major card networks (Visa, MasterCard, American Express, and Discover) has their own set of reason codes. They'll tell you with a fair degree of specificity what issue led your customer to ask for a chargeback—fraud, merchant error, improper authorization, and so on.
Different chargebacks must be fought differently.
Some may be simple—a "merchandise not received" chargeback, for example, won't hold up well in representment if you have proof from the shipping company that the order was delivered and signed for. On the other hand, if you get a chargeback that appears to be the result of true fraud, fighting it may not be feasible.
Before you can make any informed decisions about how to proceed with a chargeback, you have to look at the reason code.
Compile the Right Compelling Evidence
Once you know the reason for the chargeback, you can start putting together the evidence that will show the bank that the transaction was valid and the funds should not be returned to the cardholder.
Depending on the chargeback reason, here are some examples of evidence documents you could include:
- Proof of AVS/CVV match
- A copy of the invoice
- Tracking/delivery confirmation
- Your terms and conditions that the customer agreed to
- Proof that the customer downloaded and used a digital product
Remember, the documents you submit to the bank will most likely be reviewed by a busy person who has to look over and process large numbers of chargeback disputes within a limited timeframe, so keep your paperwork lean and to the point.
Write A Winning Rebuttal Letter
Once you've gathered the evidence you're going to submit, the final and possibly most important step is to write a rebuttal letter that lays out your case for why the chargeback should be denied.
Your rebuttal letter should be succinct (keep it to a single page) and easy to understand.
Assume that your rebuttal letter will be one of hundreds the bank has to read that day, and don't make them work any harder than necessary to grasp your argument and absorb the key facts. The purpose of the letter is to provide the context in which to make sense of the documentary evidence you're submitting.
In-House or Outsource?
The advice above assumes you'll be fighting chargebacks in-house. For most business owners, this approach makes the most intuitive sense, because at first glance it would certainly appear to be the most cost-effective way to go. After all, one way to keep your ROI high is to minimize the amount of money you invest in allocating resources to fight chargebacks, right?
For businesses that deal with a high volume of chargebacks, this can be a misconception.
If you don't have the time or personnel to effectively manage the number of chargebacks you receive, respond to them timely, and fight the ones that can be recovered, then it will absolutely make sense to hire experts who can take on that job for you.
It's still important to track ROI carefully if you hire a chargeback management firm. The best firms will not only successfully fight chargebacks for you, they'll also provide value by helping you understand the root causes of your chargebacks and the particular vulnerabilities of your business, so that you can prevent them from occurring in the first place.
Are chargebacks just "the cost of doing business"? Our new eGuide, Why Chargebacks are No Longer a Cost of Doing Business, shows that many chargebacks are avoidable, and addressing them effectively can significantly improve your bottom line.