Merchant Error Chargebacks

Table of Contents

1. What Are Merchant Error Chargebacks?
2. What Common Merchant Errors Lead to Chargebacks?
3. How Can Merchants Avoid Errors That Cause Chargebacks?

When it comes to preventing chargebacks, the first step is always to identify the root causes of the chargebacks you receive. If you know what's causing your chargebacks, you can take effective measures to prevent future ones—without wasting your time searching for cracks in your defenses that aren't there or aren't relevant for your business.

Unfortunately, a careful analysis of the root causes of your chargebacks will often reveal an uncomfortable truth: at least some of the time, the cause of those chargebacks is you.

Merchant error chargebacks are extremely common, but the good news is that you can prevent them by identifying their specific causes and making the necessary changes to your operations. What are some of the most frequently encountered merchant error chargebacks, and what can merchants do to prevent them from happening?

Chargebacks are often lumped into three broad categories—true fraud, friendly fraud, and merchant error.

True fraud chargebacks are the classic cases of fraudsters using stolen credit card numbers to make unauthorized purchases. These chargebacks are serving their intended purpose and cannot be contested by merchants, they can only be prevented ahead of time.

Friendly fraud chargebacks occur when legitimate customers file chargebacks under false pretenses. Sometimes friendly fraud is intentional, but sometimes they happen because customers are confused by actions or communications from the merchant—the line between friendly fraud and merchant error can be blurry in these scenarios. Friendly fraud chargebacks can (and should) be fought through chargeback representment.

The third category, of course, is merchant error.

In many cases, cardholders will want to dispute a transaction when they are dissatisfied with the quality of the goods or services they received from the merchant.

This is not a valid reason for a chargeback, and these disputes are considered friendly fraud, not merchant error.

However, when a merchant misrepresents the goods or services they’re selling, doesn't follow through on a promised delivery or refund, or otherwise fails to uphold the terms of purchase that they informed the customer about prior to the sale, any chargeback that results should be considered merchant error.

Customers are required to attempt to resolve the situation with the merchant before contacting their bank to dispute a charge, and banks will usually ask customers if they've done so prior to granting a chargeback. This presents an opportunity for the merchant to prevent the chargeback by issuing a refund.

Unfortunately, customers sometimes lie—whether out of malice or simply impatience—and say they've attempted to contact the merchant when they haven't. This is more common in some situations than in others. When a customer feels that a merchant has intentionally deceived them, they're unlikely to give the merchant a chance to resolve the situation before going to their bank.

By definition, merchant error chargebacks are preventable—they represent situations where the merchant had the opportunity to choose a different policy or course of action that might have avoided the circumstances that led to the chargeback.

Any time you receive a merchant error chargeback, study it closely, because you can always learn from these disputes.

While there are countless possible errors a merchant can make that might lead to a chargeback, some mistakes are more common than others. Here are a few of the most common causes of merchant error chargebacks:

Confusing Billing Descriptors

When a cardholder reviews their billing statement and sees a charge that they don’t recognize, they will often assume fraud has occurred and call their issuer to dispute it. In many cases, this occurs simply because the company name in the descriptor is different from the storefront name that the cardholder knows.

Technically, these chargebacks should be considered friendly fraud, but they are generated by a commonly overlooked error that merchants can easily fix.

Transaction Processing Errors

Most credit card transactions are straightforward and heavily automated, leaving little margin for error. Any time merchants manually key in a transaction or intervene to help a declined card go through, there's potential for transaction processing errors to creep in.

If the amount doesn’t match the receipt, or if the transaction was never properly authorized in the first place, a chargeback will often result.

In addition, if a transaction was improperly processed and a cardholder wants to dispute the charge for any reason, the bank will often use the processing error as a reason to automatically decide in the cardholder's favor.

Unresponsive Customer Service

Never underestimate the power that excellent and attentive customer service has to neutralize potential chargeback situations. When a customer is frustrated or unhappy, you need to provide good communication, transparency, and a willingness to make things right for them.

However, great customer service is of no use if your customers can't reach it. If  customer service is only available for a few hours a day or only through a single communication method, you're more likely to see customers filing chargebacks because they couldn't reach you.

Shipping Problems

You may feel like the product is out of your hands once it’s in transit with the delivery company, but merchants are still responsible for issues that crop up at this juncture. Unless you can prove that the product was delivered to the correct location in the manner approved by the cardholder, liability for delivery-related chargebacks usually falls on the merchant.

Misleading or Inaccurate Product Descriptions

While cardholders can’t demand a chargeback simply because they’re disappointed with the quality of a product, they can file a dispute if the merchant misrepresented the goods they were selling. This can get into subjective territory, but if you receive a chargeback for this reason, it’s time to review your marketing and website copy.

There is, however, some general advice applicable to most merchants:

• Use recognizable merchant descriptors that include your store name and contact information (ideally your website address).
• Train your staff on correct transaction processing procedures.
• Respond to customer calls and emails as promptly as you can. Take their concerns and complaints seriously.
• Be generous with your refund policy. Once you have promised a customer a refund, don’t delay issuing it.
• Process cancellation requests for recurring billing transactions immediately.
• Provide live tracking information and signed delivery confirmation for every order you ship.
• Make sure that your product and service descriptions are honest, accurate, and transparent. Don’t make big promises that you can’t really fulfill.

When you don’t analyze your chargebacks to discover their true root causes, it’s all too easy to assume that clever fraudsters and unscrupulous customers are responsible.

While this is often the case, merchant error is a leading cause of chargebacks that cannot be ignored. It is essential for merchants to find out where they may be making mistakes and eliminate as many preventable merchant error chargebacks as they can.

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