How to Reduce Chargebacks
As an eCommerce marketplace seller, your goal is to sell your product to the customer and get paid for it. This sounds pretty simple, right? However, chargebacks may occasionally occur and turn a straightforward business transaction into a difficult one.
Whether you’ve experienced chargeback frustrations in the past or have yet to do so, chargebacks are a reality you have to face.
Merchants do not favor chargebacks, but they are essential to have in place. They provide online fraud prevention for consumers and prevent chargeback fraud by criminals. However, as an eCommerce seller, you want chargeback transactions to be as infrequent as possible.
After all, as a merchant, you don’t want to lose money from your merchant account. And a chargeback fee for each transaction can add up in cost.
What Is a Chargeback?
A chargeback is a reversal of a credit card payment requested by a customer and completed by the bank or credit card company. The chargeback process occurs when an individual contacts their bank or credit card company and requests money spent on a purchase be returned to them for one reason or another.
This credit card chargeback is the result of a payment dispute. Sometimes it’s caused by merchant error while other times it’s due to the fraud of others. When the money is returned to the customer’s account, the merchant has the money removed from their account and they might even lose the product, too.
Types of Chargebacks
Chargebacks come in many forms, including outright fraud and merchant mistakes. There are various reasons why chargebacks occur, and the payment processor withdraws money from the seller’s account.
Here are four main reasons why transaction chargebacks occur and how a chargeback dispute could become an issue:
- Fraud: Someone purchases the product with a stolen credit card. The chargeback claim gets the money back to the rightful owner in response to the fraud.
- Merchant mistake: A merchant might accidentally charge a customer twice for a product. The chargeback will return the overpayment to the customer.
- Service dissatisfaction: The customer is dissatisfied with the service they have received or feels the product wasn’t as described. They ask the bank to return their money to them.
- Unrecognizable charge: The customer doesn’t recognize the charge on their statement. Or, there might be a difference in the price of the product and the amount charged. This type of transaction is often called friendly fraud.
Although chargebacks do occur, there are ways to minimize the amount of times they take place. You want to reduce chargebacks so you can rest easy knowing that when you sell a product, you’ll get paid for it.
eCommerce merchants learn many things along the way, especially if you consult an eCommerce startup guide, and reducing the chargeback ratio is one thing you need to know. You want to make sure chargebacks are minimal, and chargeback reason codes aren’t listed often on your business accounts.
Ways to Reduce Chargebacks
Reducing chargebacks will help ensure you get paid for the products you ship out in the transaction, and the money won’t disappear from your account at a later time.
Here are some ways to reduce chargebacks:
1. Use Fraud Protection Filters
The best way to avoid criminal fraud chargebacks is to use fraud protection filters in the payment gateway. Two types of fraud filters to prevent credit card transaction misuse include:
- Card Verification Code (CVC/CVV2): The CVC/CVV2 is a three-digit security code on the back of all credit cards. When a cardholder makes a purchase, they enter their credit card details, including the bank identification number, and the code. If the code doesn’t match the issuing bank records, they will deny the card as a safety precaution.
- Address Verification System (AVS): The AVS process is where the cardholder must enter their billing address when buying products online or through other means that are not in-person. The merchant will compare the address to the issuing bank documents. If it doesn’t match, the vendor can decline the card and let the cardholder know why.
The online merchant can use these credit card fraud safeguards to ensure the purchaser is who they claim to be. Therefore, they’ll know the transaction is valid which will reduce the likelihood of a fraudulent chargeback and fraudulent transaction.
2. Use a Recognizable Company Name
One of the reasons credit card chargebacks occur is that a customer doesn’t recognize a transaction charge on their credit card statement or debit card statement. This situation occurs because the purchaser doesn’t know the company name. As a result, the customer contacts their issuing bank or credit card company and disputes the charge.
To prevent friendly fraud chargebacks, your credit card billing descriptor must be similar to your actual business name. This way, when the charge appears on the customer’s statement, they’ll know who the seller is that received the payment. This safeguard will eliminate potential chargebacks, help with managing chargebacks, or result in fewer chargebacks occurring.
3. Use Detailed Product Descriptions
Customers may also deny transaction charges due to incorrect or missing product descriptions. When a customer doesn’t recognize a charge due to lack of a proper product description, they will contact their bank. As a result, the payment processor will initiate a chargeback.
Merchants can prevent friendly fraud chargebacks by using detailed statement descriptors and a detailed transaction receipt. These descriptions should accurately and fully describe the purchased product. The more details you can include, the better.
When you accurately describe your products, your customer will remember what they purchased in the sales transaction. They won’t dispute the charge, which means the money will stay in your bank account.
4. Use Shipment Tracking Numbers
It’s essential to use shipment tracking numbers when you ship out sales transaction orders. These numbers are significant for two different reasons. First, shipment tracking numbers let customers know when their products will arrive. Secondly, shipment tracking numbers are an excellent way to show evidence that the purchase and delivery occurred.
If the customer disputes the fact they received the box, you can use the shipment tracking number and show the product was delivered and the location where it was delivered. Shipment tracking numbers provide a handy way to keep track of shipments and protect your investment in the purchase price.
5. Offer Easy Refund Policies
Customers will occasionally have to contact their banks or credit card companies to dispute a charge. As a result, a chargeback may occur if the customer wants a refund and cannot get one directly from your company. Customers request refunds for many reasons, such as not liking the product or it not matching the company’s description.
Whatever the reason, if you don’t offer easy refund policies, your customers will take their complaints elsewhere. And when they contact the credit card company to get their money back, this means you lose the money, and you may not get your product back either.
Offering easy refund policies will make it easy for the buyer to return their product and receive their money back. As a result, the sale might not occur, but you’ll get your product back.
6. Make Sure Free Trials Are Free
Some eCommerce companies will offer free trials for a specific period. To gain access to the free trial, the customer must enter their credit card information. This credit card information will be used at a later time if the customer decides to sign up for the program offered after the free trial expires.
Chargebacks can occur if the merchant charges the customer’s credit card after the free trial expires, and they don’t want to sign up for the plan or in the form of a recurring transaction. The best way to ensure excessive chargebacks don’t occur is to make sure that customers must opt-in to sign up for the program once the free trial period ends. This way, you’ll only have people signing up who want your program, which will eliminate unwanted credit charges.
7. Be Available to Customers for Questions
Customer frustration due to customer service can also lead to chargebacks. When a customer has a question regarding a charge on their credit card account by your company, they want to get a hold of you to have their questions answered.
If your company representatives aren’t available to answer questions or put the customers on hold for a long time, they might give up. They might dispute the charge with the card issuer instead. As a result, you lose the money, and you lose the product, too.
Make sure your company representatives are always available to answer questions. Even though company representatives might be busy, try to eliminate wait times on phone calls and live chat. And be responsive to email inquiries, too.
Reducing Chargebacks is Possible
Your company can reduce the chargeback rate and avoid fighting chargebacks. By being mindful of the tips above, you are doing what you can to cater to your customers. And, by doing so, you can ensure that chargebacks are less likely to occur.
There will still be instances where unnecessary chargebacks occur. And, ultimately, your company loses money from the sale of the product. However, you can lessen the frequency of these occurrences by ensuring your sales descriptions and name are accurate. Chargebacks can also be less frequent if you make sure your customers are happy with their purchase and offer the best customer service.
So, what can you do to make sure your business doesn’t take a huge financial hit when chargebacks inevitably occur? One option is to get funding from Payability. We offer businesses of all sizes an advance on their sales revenue so they have the cash they need to keep their business running smoothly. Plus, we only charge a small fee for our services and there are no long-term contracts or hidden fees. Contact us today to learn more about how we can help you reduce the impact of chargebacks on your bottom line.