A merchant error chargeback is a chargeback caused by an error on the part of the merchant, such as non-delivery, damaged goods, etc.
By Bill Bacon, Director of Client Success, Chargeback Gurus
It’s only human to make mistakes, and usually an apology and some corrective action are enough to set things right again. When merchants make errors in their dealings with customers, however, the consequence can be a costly and damaging chargeback.
While it’s true that fraudsters are the primary source of most merchants’ chargeback woes, sometimes you have to look in the mirror and make a frank assessment of the disputes you might be bringing on yourself. What types of merchant errors lead to chargebacks, and what are the best ways to avoid making these errors in the first place?
Of the three types of chargebacks—true fraud, friendly fraud, and merchant error—the latter tends to be the most ambiguous. It can cover a wide range of situations, and unlike true fraud chargebacks (which are always valid) and friendly fraud (which can be fought through representment), merchant error chargebacks often fall in more of a gray area.
For this reason, it's very important for merchants to understand merchant error chargebacks well, and to have a framework for determining their validity and making an informed decision about how to respond to them.
Merchant error chargebacks are also the category where prevention efforts can realize the greatest improvements. True fraud is a persistent problem because fraudsters are always working hard to come up with better schemes and defeat high-tech anti-fraud tools, and friendly fraud can be very difficult to anticipate.
Merchant error chargebacks, on the other hand, result from situations and procedures that the merchant has some control over, so if you can identify the causes of merchant error chargebacks you should be able to prevent their recurrence.
What Is a Merchant Error Chargeback?
Merchant error chargebacks occur when a cardholder disputes a charge because they believe the merchant made some kind of mistake, either in the processing of the transaction or in the fulfillment of the purchase. Duplicating a charge, processing a refund as a charge, shipping an order to the wrong address, or shipping the wrong product are all possible reasons for merchant error chargebacks.
You can’t necessarily tell from the reason code, however, whether or not a chargeback is due to merchant error. A dispute over an unauthorized transaction could be true fraud, friendly fraud, or merchant error, depending on the circumstances. The only way to know for sure is to research the chargeback once you receive it and go over the details of the transaction.
Should You Fight Merchant Error Chargebacks?
Merchants can use the chargeback representment process to fight illegitimate disputes and recover their money, but only if they have evidence that proves they are in the right. If you’ve made a genuine error and the cardholder’s dispute claims are true, accepting the chargeback will save you from wasting time and resources on an unsuccessful representment—and it’s the right thing to do for the customer.
It’s also a good idea to reach out to the customer and see if there’s anything else you can do to resolve their issue, as this can turn a negative experience into a positive one and encourage them to keep shopping with you in the future.
If you have researched the facts of the claim and determined that you did not make an error, then what you’re dealing with isn’t really merchant error, but friendly fraud. The cardholder may be honestly confused or mistaken, but you can and should still fight the chargeback with your best compelling evidence.
If you think the cardholder made a mistake in good faith, you can contact them and try to resolve the issue yourself in order to repair the customer relationship. Just beware that intentional friendly fraudsters will usually keep filing false disputes until you block them.
What Are the Most Common Causes of Merchant Errors?
No matter what the reason code is, the number one cause of merchant error chargebacks is unresponsive or unhelpful customer service. Questions, complaints, problems, and requests all go through your customer service representatives first, and when things go wrong here it can discourage your customers from pursuing their issues with you further.
Your customer service team needs to be prepared with accurate, readily accessible account information so they can quickly get a handle on customer issues and get to work resolving them before they become chargebacks. If cardholders think they’ll get things resolved faster if they call up their bank, they will call up their bank.
It’s especially important to adhere to service level agreements and response time guarantees. If you aren’t holding up your end of the terms and conditions of your sale, you won’t have standing to fight any chargebacks that follow.
Which Departments Most Commonly Contribute to Merchant Errors, and How?
As crucial as customer service is to preventing and resolving disputes before they can turn into chargebacks, almost every department in your organization can inadvertently cause chargeback-worthy errors.
- Accounting: Incorrect billing and reconciliation procedures can lead to erroneous charges.
- Fulfillment: Orders that arrive late, get sent to the wrong address, or that contain damaged, missing, or incorrect merchandise can result in valid merchant error chargebacks.
- Legal/Operations: Return and refund policies that are confusing, unfair, or non-compliant with local regulations can frustrate customers to the point where they file a chargeback.
- Marketing/Sales: When your advertisement and marketing materials create false or unrealistic expectations for what your products can do, customers may feel disappointed, misled, and ripped off. Don’t make promises you can’t fulfill, and keep your marketing claims realistic and accurate.
Whichever department made the error, it’s usually customer service who will hear about it first, putting them in the best position to change the course of the dispute.
How Can Your Customer Service Team Reduce Merchant Errors?
Lots of chargebacks happen because the cardholder couldn’t get anyone in the merchant’s customer service team to respond to them in a timely manner, or if they did get ahold of somebody, they were met with delays or resistance instead of getting a prompt and satisfactory resolution of their issue. Friendly, accessible, knowledgeable, and empowered customer service can go a very long way toward preventing chargebacks.
If you’ve already got an excellent customer service team and you need specific ideas for improvements that will bring your chargeback rate down, here are a few recommendations:
- Maintain an impeccable CRM that documents all of your customer communications and tracks important data related to the shipment, delivery, and usage of your products.
- Create playbooks for your customer service team to follow when they encounter a potential dispute scenario.
- Document the reasons for chargebacks and tie them back to their root causes.
- Follow up on all complaints to gather more details and determine their accuracy.
- Loop in management when reporting and taking action on complaints, disputes, and chargebacks.
- Establish ongoing education and performance metrics for your customer service team.
How Can You Reduce Merchant Error Chargebacks Caused by Customer Service?
As your front line of defense, customer service can prevent lots of chargebacks—but their errors can easily cause them, too. Slow response times, inaccurate information, and unsatisfactory solutions can cause customers to give up on trying to resolve issues directly with the merchant.
There are several ways for merchants to set their customer service staff up for success. Establishing metrics and goals for service response time and other measurable indicators will give you an objective window into how things are going before you hear it from angry customers. You can support them in creating positive outcomes and customer experiences by providing them with clear refund and return policies, accurate tracking for shipments, and real-time order status updates within your CRM.
One of the best ways to help your staff meet their goals is to continuously invest in their training and education. As the “voice” of the merchant, customer service representatives need to be experts in their products and policies. When frustrated customers encounter representatives who can give immediate answers and are empowered to come up with good solutions, disputes can be amicably defused.
Conclusion
There’s no way to completely eliminate any chance of merchant error, but if you’re taking a close look at your chargeback data, you should be able to prevent the same merchant error from happening more than once. When you have identified the root causes of a chargeback and traced them back to an error on your own part, you should immediately look for ways to adjust your policies and operations to prevent such an error from recurring.
The hardest merchant errors to anticipate and prevent are the ones that involve subjective disagreements between you and the customer. In these scenarios, your best chance to avoid a chargeback and retain the customer’s loyalty is to give your customer service team the support and resources they need to resolve the matter.