How to Maximize ROI When Preventing Chargebacks
For online merchants, chargebacks pose a serious and ongoing challenge. With card-present security improvements driving scammers to ply their schemes over the internet, and banks eager to provide their customers with a strong sense of security when shopping online, both true fraud and "friendly" fraud chargebacks are on the rise. Many merchants are concerned with finding the best ways to fight and prevent chargebacks from happening.
The impact of a chargeback isn't just the reversal of a single transaction. When a chargeback goes through, you're out every dollar that was spent to make that sale happen in the first place—everything spent on overhead and marketing, the cost of shipping, the bank fees associated with the transaction and the chargeback, and more. The final price tag on a chargeback can be double to triple the amount of the original transaction. And what happens when too many chargebacks go through, and you exceed your payment processor's chargeback threshold? You could lose your merchant account.
Chargeback prevention is an essential practice for any e-commerce merchant, which means that many tools, services, and companies are sprouting up to meet the demand for effective chargeback defense. Unfortunately, using these resources indiscriminately can soon leave you in a situation where your chargeback prevention budget is greater than the revenue you're losing to chargebacks.
A good chargeback prevention plan is one that provides a positive return on your investment.
In-House Prevention Strategies
Because chargebacks can happen for a variety of reasons, preventing them can require a multi-pronged approach that factors in all of the ways your business might be vulnerable to them.
A combination of big-picture prevention strategies and tools that focus on your specific vulnerabilities is best.
Here are some of the basic steps every merchant can take to reduce the number of chargebacks they receive:
- Set realistic expectations. Many friendly fraud chargebacks happen not out of a deliberate desire to cheat a company out of their money, but because the customer was frustrated with the quality of the product or service they received and took it up with their bank because they had already lost their trust in the merchant. Honest and ethical marketing practices make it less likely that customers will feel misled or disappointed enough to do this.
- Maintain efficient operations. If you act quickly to identify invalid orders, process refunds quickly, and monitor tracking information for product returns, you can screen out potential chargeback issues and resolve customer service situations before the customer loses patience and runs to their bank.
- Provide excellent customer service. Having dependable, courteous, and knowledgeable support available when a customer wants to return an order or ask for a refund will encourage them to work with you to get the outcome they're hoping for, instead of disputing charges with their bank.
- Deliver prompt fulfillment. Ship orders on time, track everything shipped out or returned to you, and issue refunds quickly. If you expect delays, be timely and transparent in communicating with customers about them.
External Prevention Tools
Friendly fraud, merchant error, missed delivery, and other chargebacks related to customer service issues can be addressed by identifying weak areas in your business operations and making improvements, but when it comes to true fraud chargebacks, having the right technological tools can make all the difference when it comes to prevention.
- Chargeback Prevention Alerts provide immediate, 24/7 notification and response to chargebacks, and in some cases, they can grant you the opportunity to issue refunds and resolve customer issues before the banks get involved. These alerts can be costly, but merchants who deal with a large volume of chargebacks and have difficulty finding the time and resources to respond to them within the deadline may find them to be a lifesaver.
- 3-D Secure technology and other fraud prevention tools can help you eliminate problems with authentication errors, card theft, and AVS/CVV mismatches. Any merchant that processes a large number of online credit card transactions will benefit from adopting technology that improves card processing and cardholder data security.
DIY Or Call in The Pros?
If you don’t have the time or resources to handle and to prevent chargebacks in-house, you can always outsource to a chargeback management company.
A good chargeback management company will show you that you're getting a good return on your investment in them in the following ways:
- They'll provide reporting that helps you identify the root causes of your chargebacks so you can implement effective prevention strategies
- They'll handle chargeback representment for the chargebacks that can't be prevented
- They won't lock you into long-term agreements—they'll be expecting the results they deliver to keep you on as a client, not the contract you signed
- They'll use state-of-the-art security measures and best practices to keep your data secure
- Their billing will be completely transparent; you'll know what you're paying them to do, and why.
While some smaller companies may be able to successfully handle chargeback prevention on their own, if you that find your chargeback problem keeps growing and eating into your revenue, it might be time to call up the experts and see what they can do for you.
Should chargebacks be considered just "the cost of doing business"? Our newest 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. Get your copy today!