5 Merchant Best Practices to Prevent Chargebacks
Decreasing—and actually preventing—customer credit card disputes (chargebacks) can seem like a pipe dream for some businesses. In fact, research shows that a majority of merchants believe that the problem is unavoidable; an unfortunate but acceptable cost of doing business.
Even if you only receive the occasional chargeback here or there, you’re still losing revenue, and overall, customer disputes add up to big money. As of June 2018, Visa—the largest credit card network operating in the US—had a total process volume of $11 trillion, coming from some 336 million Visa credit cards in circulation in the United States. Of the amount processed, cardholders disputed an estimated $44 billion.
Legitimate disputes, known as chargebacks, result from unauthorized card usage, unsatisfactory merchandise, or merchant errors, and other such claims. If the cardholder calls the bank that issued the credit card and cites such a situation, that bank has the right to forcibly remove funds from your account and return them to the consumer. You not only lose the sale, but also lose the cost of the service or merchandise, and are charged additional fees.
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That applies to legitimate chargebacks, but not all chargebacks are valid. In fact, the majority being filed today—anywhere from 60-80% of disputes—are fraudulent. These friendly fraud chargebacks often cause irreparable damage. Most businesses are not equipped to handle them.
You can challenge invalid chargebacks through the representment process. However, the procedure is complicated, time-consuming, and weighted heavily in the customer’s favor. Historically, merchants who try to challenge chargebacks without professional assistance have little chance of success.
The Best Defense: Chargeback Prevention
A better plan is to do everything in your power to avoid chargebacks from happening in the first place. Obviously, no one wants to believe that they are the cause of their own problems. The fact is, however, that seemingly-harmless errors and minor missteps on your part can trigger repetitive customer disputes, leading to a serious, sustained loss of revenue.
A thorough and detailed analysis by an unbiased third party can help identify these trigger points. You can be proactive in fighting chargebacks, though, by implementing best practices aimed at reducing the number of chargebacks you receive each year. We at Chargebacks 911® have identified five key areas you should focus on to prevent chargebacks and decrease your overall chargeback rate:
Up Your Customer Service Game
Answer the phone—the old fashioned way—in 3 rings or less. It’s a myth that most customers who file chargebacks never attempt to contact the merchant first. The problem is, most of these calls end in a hang-up once the hold music starts, or they get caught in an endless loop of automated answering systems.
Dissatisfied customers file chargebacks, but every time the phone rings may be an opportunity to resolve a customer’s issue and prevent a chargeback. Thus, you should make sure a human being answers the phone quickly. This concept holds true for social media and other online venues, as well. Try to respond to any contact in one hour or less; if that isn’t possible, set up an auto-response that tells the customer when to expect a more detailed answer.
Make it Easy to Contact You
Common sense dictates that the harder it is for a customer to reach you with an issue, the more likely they are to file a chargeback instead of seeking a refund or other resolution. No merchant likes returned merchandise, obviously, but issuing refunds involves a lot less hassle than dealing with chargebacks.
To that end, go out of your way to emphasize how easily an unsatisfied customer can contact you. Prominently display your customer service email address and phone number on every page of your website. If customers understand that contacting you is a cheaper, easier, and less time-consuming path to resolution, they’ll be much more inclined to take that option.
Keep Your Customers in the Loop After They Order
Your fulfillment and shipping policies should be as easily accessible as your contact information. Openly state timeframes for order processing, then send an email confirmation and order summary within one business day of the original order.
Provide up-to-date information if any delays occur (such as an item being back-ordered), and give buyers the option of canceling the order. The use of tracking numbers for shipping is good; informed customers feel more in control, making them less likely to call the bank.
Educate Customers on the Value of Your Product
“Buyer’s remorse,” the act of rethinking a purchase after the fact, is a prominent trigger for chargebacks. It’s in your best interest to remind customers of why a particular purchase was originally made.
Stay in communication about your product, even after the order is fulfilled. Whether through a newsletter or friendly email, strive to reassure buyers that they made the right decision, emphasizing the value of their purchase.
Be on the Lookout for Suspicious Transactions
It seems obvious, but a number of chargebacks can be avoided by simple vigilance. You should constantly be on the lookout for any red flags that could mark suspicious activity. For instance, watch for rushed or random orders, shipping addresses that differ from the billing address, customers who seem reluctant to give personal information, or anything that seems out of the ordinary.
These types of customer behaviors don’t inherently indicate fraud. If something seems amiss, though, it’s worthwhile to take a closer look at the transaction before it’s processed. Also, take advantage of free fraud-fighting tools offered by the card networks (chip cards, security codes, and so on) to validate whether the buyer is authorized by the cardholder to make the purchase.
In addition to those five points, here’s another quick bonus tip: provide fast and easy refunds.
Answering the phone is important, but it’s not enough in itself: you also have to act. This is especially true when we’re talking about returns and exchanges. Make your refund process streamlined and straightforward; this will keep customers from becoming more frustrated. The goal is to ensure that securing a refund from you is easier than filing a chargeback.
When you promise a refund, make sure to process it in a timely manner. Customers who don’t see movement on their account quickly may decide to call the issuer and accuse you of reneging on the refund.
Prevention Only Goes So Far
The best way to reduce the stress associated with chargebacks is to prevent them from happening in the first place. Anything you can do to enhance customer service will help decrease chargebacks as well. The tips above are not merely best practices for chargeback prevention; they are best practices you should be following in general.
While there are no tactics that guarantee comprehensive prevention in every situation, it is possible to create a customized plan that successfully addresses your particular circumstance.
Chargebacks911 combines an unparalleled understanding of emerging threats with real-world merchant experience. This enables us to create the most dynamic, most effective risk mitigation solutions on today’s market—all backed by the only performance-based ROI guarantee in the industry.
Contact Chargebacks911 today for a free ROI analysis. We’ll show you how much you will gain by optimizing this last essential layer of fraud management