Businesses have to evolve to keep up with customer demands while still protecting themselves, especially in the payments space. Managing chargebacks is one of the challenges that every business faces, and if left unchecked it can have a huge impact on your profitability. In this article, we’ll discuss how to prevent chargebacks, what they are, and why they matter to protect your business’s bottom line.

What is a Chargeback?

In order to prevent chargebacks, you need to know what they are in the first place. A chargeback is a reversal of a transaction started by a customer through their bank. It’s essentially a customer request to dispute a charge they see on their statement. A chargeback is different from a simple refund (which is done directly between customer and business) in that the customer’s bank gets involved. If a chargeback is filed, the bank will look and see if the customer has a legitimate cause for dispute, and if they do, the bank can refund the customer directly.

Chargebacks were originally created to protect consumers from fraud and unauthorized transactions, but they’ve evolved. Today, the reasons for which many chargebacks are filed include not just fraud, but simple dissatisfaction of the product, buyer’s remorse, or even intentional chargeback abuse (commonly referred to as “friendly fraud”).

Why Chargebacks Are Costly for Businesses

Chargebacks aren’t just reversing a single transaction, they come with additional, often hidden costs which quickly add up. Here’s how chargebacks can hurt your business:

Lost Revenue and Product

If it’s a physical good, businesses also lose the product itself in most cases, and the revenue from the sale. You might not get the product returned, but still be out of pocket.

Chargeback Fees

The chargeback fees your payment processor charges for each chargeback filed range from $20-$100 per dispute. This is to say that each chargeback could be more expensive than the transaction amount alone.

Higher Merchant Fees

If you have consistent chargebacks, providers will see your business as higher risk and will charge you higher processing fees. If your chargeback rate goes high enough, you could even lose the ability to accept payments.

Damaged Customer Trust

If you’re noticing frequent chargebacks, it means there’s something wrong with customer satisfaction or trust, something that can damage your reputation and affect customer loyalty.

Risk of Being Blacklisted

If your business is flagged or blacklisted by the banks and payment processors, excessive chargebacks can be the reason. This blacklist is very hard to remove and makes it almost impossible to find processing services.

Common Causes of Chargebacks

It’s important to know why chargebacks happen to reduce them. Here are some of the most common reasons:

Fraudulent Purchases

The leading cause of chargebacks is unauthorized transactions. But these issues must be guarded against through fraud prevention tools.

Customer Confusion

Customers sometimes don’t realize they’ve made a purchase on their bank statement or forgot about a subscription charge and end up disputing it.

Product or Service Dissatisfaction

If a product doesn’t say or do what it should, that can result in disputes. Delayed shipments can also cause complaints and chargebacks.

Friendly Fraud

If a customer files a chargeback on a legitimate transaction, this is called chargeback abuse. These can be due to buyer’s remorse, accidental disputes, or the desire to keep the refund and the product.

How to Prevent Chargebacks

With the right strategies, you can lower your risk of chargebacks and protect your business. Here are some effective methods to prevent chargebacks:

1. Fraud Detection and Prevention Tools

If your business processes high volumes of transactions, it is important that you implement fraud detection software. Fraud tools such as address verification, CVV checking, and 3D Secure are tools that prevent fraud transactions from getting through to your system.

2. Clear and Honest Product Descriptions

One of the biggest causes of chargebacks is the customer’s dissatisfaction with a product or service. If you can give them some accurate, detailed descriptions and set proper expectations this can go a long way in minimizing the risk of it. Tell customers what delivery time, refund policy, and other important details they should know before buying.

3. Detailed Records

The more information you keep on each transaction, the better you can dispute illegitimate chargebacks. To support you if a chargeback is filed, keep track of order details, communication history, shipping documentation, and delivery confirmations.

4. Chargeback Ratio Tracking

It’s good practice to regularly check your chargeback ratio, or the percentage of chargebacks versus total transactions. Staying in good graces of payment processors involves keeping your chargeback ratio below 1%.

5. Improved Customer Service

Investing in a responsive customer service team can help to resolve an issue directly with the customer rather than with the customer and banks, hence reducing the chances for a chargeback. Customers need to have an easy way to talk to you in case of questions or complaints and be proactive in giving refunds or exchanges when need be.

6. Recognizable Billing Descriptors

Default statement descriptors can often be unclear, leaving customers unable to recognize charges. Even valid transactions can prompt customers to dispute a charge with their bank if it’s unfamiliar. Notifying the merchant processor and POS company and using a clear statement descriptor helps lower the risk of chargebacks and avoids confusion. You can also add a customer service number so that if they need to reach out to you, they can do so instead of going about starting a dispute.

7. Well-Communicated Policies

Good clear policies around returns, refunds, cancellations help to control customers’ expectations. Reduce misunderstandings and prevent chargebacks by displaying these policies prominently on your website and in transaction receipts.

How Card Systems Can Help Protect Your Business

At Card Systems, we know how important it is to prevent chargebacks and protect your business revenue. Our secure payment processing solutions have built-in fraud prevention tools, chargeback management assistance, and account monitoring to help you proactively combat disputes. We can help you prevent chargebacks and grow your business.

Find out more about how Card Systems can protect your transactions and improve your customer experience by contacting us today!

 

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