When you are accepting credit card payments, chargebacks are unavoidable. They are also significantly time-consuming to dispute. At the same time, they are quite expensive to be ignored. In some cases, they might cost as much as $20 to $100 in total fees for every transaction. When you receive multiple chargeback complaints, your business will be regarded as high risk. Therefore, you might be charged with higher debit card and credit card processing fees.
As far as chargebacks are concerned, the best defense turns out to be a reliable defense. Let us learn about ways to prevent it for your business.
What is a Chargeback?
A chargeback can be regarded as a type of consumer protection allowing cardholders to dispute merchant charges. As the system has been built towards supporting cardholders, it is crucial that merchants are aware of reducing legitimate chargebacks and eliminating illegitimate chargebacks.
As the modern card payment industry shifted to the high-end EMV-based credit and credit cards, the number of card-present frauds increased significantly. Some card issuers even witnessed around 80 percent decrease in the overall fraud-centric claims. However, an undesired outcome was that fraudsters went ahead with harnessing less secure portals -usually online portals in which all transactions were of the type card-not-present. As per a study, it is reported that CNP or Card-not-present fraud is around 81 percent more likely to take place in comparison to CP or Card-present transactions.
At the moment when merchants across the globe were already dealing with multiple CNP transactions, frauds related to the same, and even chargebacks, the advent of the global pandemic demanded the instant adoption of high-end digital or online payment solutions. Businesses were expected to deal with problems that only drained the overall revenues but also led to the creation of a poor customer experience -including delivery delays, labor shortages, supply chain disruption, and so more.
Understanding the Types of Chargebacks
- Friendly Frauds: A customer will make use of the chargeback process for getting a refund -either intentionally or by mistake.
- Criminal Fraud: A stolen credit or debit card is used for making a purchase.
- Merchant Error: A merchant might end up making a clerical error like incorrect billing amount or a duplicate charge.
Stressed or confused customers might be selecting the option of chargebacks over the assumed issue of reaching out to merchants. On the good part, you can minimize the overall financial strain on the business with the help of common chargeback prevention strategies.
How to Prevent Chargebacks Within Your Business?
Accurate recordkeeping, effective communication, and seamless fraud management will help you in avoiding chargebacks and winning disputes in case they take place. Some more tips are:
- Having a Clear and Well-defined Return & Refund Policy: You would like your customers to enjoy the overall ease of use as well as speed of the return, refund, or exchange policy to the chargeback process. Therefore, it is crucial to explain the options the customers will have when they are unsatisfied with the product or service -the duration they have to reach out to you.
It is recommended to offer customers multiple points of contact -like email, chat, phone, and even an online contact form. This allows you reach out to you at all times. You should aim at responding promptly and in a useful manner. Aim at displaying your policies in a fixed place -like the wall behind the store counter or within the online checkout process. The presence of a friction-free, friendly policy will be helpful in ensuring fewer chargebacks.
- Precisely Describe the Product or Service: Allow the customers to precisely understand what they should expect while making a purchase. This serves to be particularly important for e-commerce transactions wherein customers are expected to trust that your available description is valid.
For a particular product, it is recommended to offer detailed descriptions for quantity, quality, weight, size, usage, expected delivery time, and color. It is also useful to deliver access to images out of multiple angles. For a particular service you are offering, offer clear descriptions of what is and what is not included in the existing rate along with the service timeline. Detailed descriptions help in preventing you from chargebacks that are referred to as ‘not as described.’
- Ensure the Billing Descriptor is Easy to Recognize: The billing descriptor is the name that the customers observe on the billing statement upon making a purchase at your business. It is also referred to as the merchant descriptor or statement descriptor. If buyers are not able to recognize a charge because of the presence of a vague name, they might go ahead with initiating a fraudulent chargeback.
- Make Use of Fraud-prevention Practices: A recent study reported that fraud turns out to be one of the most common chargebacks that most merchants receive -whether they are accepting Mastercard, Visa, Discover, or American Express. Therefore, if you wish to minimize fraudulent transactions, you should aim at minimizing chargebacks in the first place.
Some tips for fraud prevention in case of card-not-present chargeback frauds are:
- Enabling 3D secure -like Verified By Visa or Mastercard SecureCode on the website
- Getting access to card-based security codes like CVV2 or CVC2 for all purchases
- Using the AVS or Address Verification System for verifying billing addresses
- Maintaining PCI compliance across all possible POS or Point of Sale systems
Some fraud prevention tips for card-present chargeback frauds can be:
- Examining the card for common signs of tampering -including an unfamiliar hologram, a damaged magnetic stripe, and so more
- Never accepting expired cards. They might be stolen and can be auto-declined.
- Avoid using keyed-in transactions. They will lack proper security while coming with higher processing costs.
- Following Specific Guidelines and Rules for Credit Card Processing: You might also end up receiving chargebacks due to the presence of duplicate transactions, overcharging, or incorrect billing amounts. Humans are prone to commit errors. However, you can think of limiting the number of merchant-specific errors by practicing protocols for protective or preventative card processing.
Firstly, avoid estimating transaction amounts. Double and triple-check the specific amount you will be charging with the help of print receipts or by referring to the payment gateway. In case the card gets declined, avoid running the card several times. This would eventually result in the creation of duplicate transactions or even duplicate chargebacks at a later point of time. Rather, ask for another mode of payment while avoiding any of the existing authorization attempts that have been repeated multiple times.
- Maintain a Detailed Record of Every Transaction: Should you go ahead with receiving a chargeback and deciding to dispute it? In this aspect, every piece of proof will be in your favor. This implies that merchants are required to safeguard the respective receipts, sales orders, purchase orders, shipping confirmations, invoices, transaction records, and contracts. You should also aim at sticking to customer communication and supplier needs -like chat transcripts and emails.
Here is the ultimate rule of thumb -if you have a single copy of something, you should not maintain zero copies. If the copy gets deleted, you will not have any backup. Therefore, if the copy gets deleted, you will not have any backup. Therefore, it is recommended to maintain at least one physical copy along with one digital copy of every document. The overall scope of limitations for a chargeback will depend on the payment processor and the bank. However, it becomes a common practice to maintain business records for a period of around 7 years.
It is not possible to eliminate all disputes and chargebacks. Even when you follow all rules and the best practices, you might still encounter occasional disputes. However, you can go ahead with eliminating excess chargebacks while staying below the chargeback limit by leveraging a comprehensive chargeback prevention strategy.