20 Simple Merchant Errors That May Cause Chargebacks & How to Resolve Them
Did you know that simple merchant errors represent the majority of preventable chargebacks?
It’s true; like most merchants, you might assume that criminal fraud is the greatest chargeback threat facing your business. However, research shows that merchant missteps account for 20-40% of all chargebacks issued.
This means that you might be wasting resources fighting the wrong problem. That’s the bad news. Here’s the good news though: 100% of chargebacks caused by merchant errors can be avoided by resolving internal issues and implementing best practices. Read on to learn how.
- What is the Zelle Dispute Process? What Should Victims Do?
- Bank of America Disputes: Here's What You Need to Know
- Wells Fargo Disputes: Chargeback Rules & Things to Know
- How to Click “Uninstall” on Google Play Store Chargebacks
- Got an Amazon Chargeback Email? Here’s What to Do.
- In-App Purchase Chargebacks: How to Prevent IAP Disputes
What is a Merchant Error Chargeback?
Merchant error chargebacks are initiated by customers who believe a mistake has been made by the merchant. This could be a mistake in the transaction process, or in fulfillment, billing, etc. Examples of some common merchant errors include:
- Billing a customer more than once for a single item
- Failing to process a transaction in a timely manner
- Sending an order to an incorrect address
- Processing a transaction without securing authorization
- Delivering an item that doesn’t match what was ordered
In the cases outlined above, you can usually identify the problem based on the chargeback reason code. That said, you might not always know the exact cause of a chargeback based on the reason code alone.
It may not clearly indicate whether the issue was due to a true mistake on your part, or a case of first-party fraud. The most effective method to find the root cause of a chargeback is to meticulously review the transaction details after receiving the chargeback notification. This can help you understand what went wrong and how to address the issue.
Can You Fight Merchant Error Chargebacks?
The short answer is “no.”
It is possible to fight chargebacks that were filed without a valid reason. This is done through a process called representment. However, if a chargeback is the result of an error that you committed, you need to take responsibility for the dispute. Acknowledging the mistake and accepting the chargeback (and the resulting revenue loss) is the only appropriate response in that case.
Of course, like we mentioned above, many chargebacks that are filed with merchant error-related reason codes are cases of friendly fraud. If a chargeback is based on false customer claims, then you absolutely have the right to fight the chargeback through representment.
We should point out, however, that representment is a costly, time-consuming endeavor. There’s also no guarantee of success. This is why it’s so important to to prevent disputes before they happen by identifying errors in your merchant operations and rectifying issues as soon as possible.
How Merchant Operations Can Lead to Chargebacks
Merchant operations lead to chargebacks when departments within a business make errors that negatively impact the customer experience.
For instance, let’s say someone on your team has to manually enter a credit card number, but messes up one of the digits. Or, you submit a transaction for batching without first getting authorization. Either of these actions will set the stage for a chargeback.
The only resource you need to become an expert on chargebacks, customer disputes, and friendly fraud.Download the Guide
Yes, these are minor mistakes that may seem insignificant at first glance. But, they can have significant repercussions, rippling out to affect the customer's perception and satisfaction.
Similarly, consider your customer service team. They play a crucial role in averting chargebacks. However, any failure to fully resolve a customer's issue can leave the customer feeling neglected, leading them to initiate a chargeback.
Your fulfillment and shipping operations are critical as well. Your team must ensure that the correct items are delivered to the correct location, within the timeframe promised at the time of the transaction. Any deviation, no matter how minor, can lead to customer disappointment and result in a chargeback.
Top 20 Merchant Errors That Cause Chargebacks
The scenarios outlined above are just a few examples of common merchant errors. There are literally scores of potential merchant errors that could trigger chargebacks.
Remember earlier when we said that merchant missteps account for 20-40% of all chargebacks issued? That’s a crucial point; it means that you might be wasting resources fighting the wrong problem. You’re investing resources to prevent disputes, while actual dispute triggers go unaddressed.
With that in mind, here are our picks for the top 20 merchant mistakes to watch for, and how you can resolve them and prevent chargebacks.
#1 | Not Prioritizing Customer Service
Merchants can be so focused on driving sales that they neglect customer care after the transaction. Upping your game won’t stop all disputes, of course, but improving customer service is a great place to begin your chargeback prevention efforts.
This means being available for your customers as many hours a day as possible (24/7 service is best). Use live phone operators, not a machine. Watch for emails and social media requests, and respond as quickly as possible. Above all, post your contact information on every page, and make it easy for customers to find.
#2 | Failing to Clarify Your Return Policy
What happens if a cardholder returns a piece of merchandise, but the merchant doesn’t issue a refund? This exact scenario leads to more than 15% of chargeback cases.
Of course, returning merchandise does not automatically mean the customer qualifies for a refund. Customers need to know your policies in advance and understand when they’re eligible for returns before shipping goods back. This is why your return policies need to be clear, concise, and obvious. This is doubly true if there are special conditions involved; for instance, if some items are non-returnable.
You should contact the cardholder immediately to resolve the issue in cases of unauthorized product returns. Make sure your policy is flexible enough to handle abnormal situations, such as the holiday season.
#3 | Not Following Up on Complaints
There’s only one way to be sure problems are resolved and questions are answered to the customer’s satisfaction: ask the customer.
You can’t assume that no news is good news. If a customer insists that you’ve already committed one merchant error, you don’t want to double down on it by leaving the issue unresolved in any way.
Follow up initial contacts with a quick phone call or email and be certain your customer is 100% satisfied. You may think an issue is settled, but a shopper could still be unhappy.
#4 | Overlooking Your Shipping Policy
Your fulfillment and shipping policies should be as easily accessible as your contact information. State timeframes for order processing, and offer multiple shipping options, along with pricing and cut-off times for each.
If the shipping time frame is noticeably longer than usual, you should prominently display that information on the checkout page. This also applies to special circumstances that might cause delays, such as after-hours orders or holiday shipping. After working through delays resulting from the covid-19 outbreak, this should be a familiar idea to most readers.
#5 | Not Using Delivery Confirmation
General delivery confirmation isn’t proof-positive that cardholders received the goods they ordered. However, it does show that an item was delivered to the correct address.
For larger or more expensive items, you should consider paying extra for signature-required delivery confirmation. This can prove that someone at the address took possession of the merchandise in case the cardholder tries to claim that the goods never arrived.
#6 | Neglecting Customer Communication
It’s not unusual for cardholders to initiate disputes simply because they don’t know what’s going on with their order. Has the order shipped? Shouldn’t it be here by now?
Questions like these can lead customers to start wondering whether they’ve been scammed. You should find ways to keep customers apprised of their order’s progress before that happens.
Send an automatic email that acknowledges the order receipt. Also, provide shipping and expected arrival dates to keep impatient customers from calling the bank. If a customer makes a social media comment (good or bad), let them know it was heard and what steps to take next.
#7 | Not Auditing Product Descriptions
Providing accurate product descriptions is imperative for all merchants, but especially for eCommerce. Customers can’t touch or try on a product, so they must depend on the descriptions you provide.
You should routinely check all your service and product descriptions for accuracy. Try to anticipate the questions a customer might ask, and answer those questions in your description. Post multiple pictures — or even videos — that show the product from all angles.
#8 | Unclear Pricing
Customers need to know exactly how much they’re paying at checkout. Make sure you’re being transparent about any extra charges such as taxes, shipping fees, currency conversion, and so on.
If there's a discount involved, it should be applied prior to payment, with the totals shown next to the full price. Never add anything to a cardholder’s bill after payment has been made; if there are additional charges, process a second transaction (only with the cardholder’s authorization).
#9 | Tolerating Bad Billing Descriptors
Billing descriptors identify your business on a customer’s payment card statement. For an eCommerce site, a good billing descriptor should include your business name and URL, plus a phone number for customers to contact you.
Some merchants are unaware that there are two parts to the billing descriptor. The soft descriptor appears on the account for up to 72 hours or more while the transaction is being authorized. In contrast, the hard descriptor remains on the statement once the transaction is settled.
Merchants are usually more concerned with the hard descriptor, and with good reason: if the cardholder cannot recognize the name of your business or the phone number is wrong, you could be looking at a chargeback situation. That said, issues that lead to merchant error chargebacks tend to be more common with soft descriptors. This is because soft descriptors can be visible for days, and a conscientious cardholder who regularly checks account activity might mistake the transaction for fraud.
#10 | Allowing Clerical Errors
Avoiding merchant errors in bookkeeping may seem like obvious advice to you. However, many customer disputes are the result of simple clerical errors on the part of the merchant.
This is especially true during busy times. It can be easy to transpose numbers or accidentally process a charge more than once if you're distracted.
You should teach your staff to double-check all entries. Avoid manually key-in information by hand when possible; if you have to enter information manually, be extra wary of any mistakes, and audit the information multiple times.
#11 | Not Using Fraud Prevention Tools
There is a wide variety of fraud prevention tools you should use to stop criminal attacks. Address Verification Service (AVS), for example, automatically checks the customer’s billing address against the address on file with the bank.
Card security codes help verify that the customer has physical possession of a payment card. 3-D Secure technology and automated response tools like chargeback alerts offer additional layers of fraud protection.
These are just a few examples; there are literally dozens of tools at your disposal. Also, be sure to use fraud scoring, which draws on all these indicators to gauge each transaction’s risk level.
#12 | Poor Transaction Recordkeeping
Perhaps one of the most important assets for chargeback prevention is an accurate, easy-to-use filing system for keeping receipts and other transaction records. If an illegitimate chargeback is initiated, these documents will be necessary to prove that the transaction was carried out properly.
Be sure all receipts are complete, clean, and legible. Also, remember that customer disputes come with very strict deadlines. You must create a filing system that allows you to quickly find and provide documentation when needed.
#13 | Not Matching Chargebacks to Sales Records
Correctly matching your chargebacks to the original sales transactions is far more difficult than it sounds. This is because of different formats and frequency gaps.
Unfortunately, if you can’t match each chargeback to the correct sales information, you won’t have the compelling evidence needed to dispute friendly fraud. Research shows that if merchants in certain verticals don’t have the time or technology to match these records in their system within five days of the posting date, chargeback activity increases by nearly 50%.
In this exclusive guide, we outline the 50 most effective tools and strategies to reduce the overall number of chargebacks you receive.Get the FREE guide
#14 | Getting Lax With Recurring Payments
A recurring payments (subscription) business model offers benefits for both merchants and customers. It also creates its own unique set of chargeback risks, though.
Be transparent with the terms of service before processing the initial transaction. Make sure the customer knows exactly what is expected. Remind the customer a few days before you charge the card, especially if the billing rate will change. It’s easy to take a “set it and forget it” attitude, but monitoring all subscriptions is critical.
Also, make cancellation a simple and painless process for customers, and follow up on such requests promptly. Inform the customer if a request comes too late to stop the billing cycle.
#16 | Not Adhering to Card Network Regulations
Each card network has its own set of protocols that must be followed before a chargeback reversal request will be considered. So, you can often avoid chargebacks simply by adhering to basic payment card best practices.
Never try to bypass the authorization process. If authorization is denied for a transaction, ask for an alternate form of payment. Do not add tips or other alterations to the total after the fact, and take care to avoid double processing.
Failure to strictly follow network requirements may result in an automatic ruling against you if the issue escalates to a chargeback.
#16 | Not Updating Terms of Service Regularly
You need to update your terms of service to reflect current practices. Making regular updates that reflect how your business operates, and communicating any changes in service or policy to customers, can reduce confusion. Make sure these terms are easily accessible and that customers acknowledge them during the checkout process.
This goes hand-in-hand with updates in response to changing card network rulesets. Visa and Mastercard release updates to their chargeback rules on a semi-annual basis. Be sure that you adjust your policies and procedures in response to these changes as they happen.
#17 | Ignoring Transaction Velocity Checks
Rapid repeat transactions on the same card or a high volume of transactions in a short period can be indicative of fraud. It may also suggest clerical errors; i.e. you accidentally attempted the same transaction multiple times.
Implementing transaction velocity checks can help identify and prevent this issue before it escalates to a chargeback. Set a limit on how many times a card can be charged in a given timeframe. Then, submit any transactions that exceed these parameters to manual review.
#18 | Not Training Employees on Chargeback Prevention Best Practices
Employees play a crucial role in preventing chargebacks. Without proper training on chargeback prevention and handling procedures, they can unknowingly contribute to the problem.
You need to invest in regular staff training sessions that focus on accurate transaction handling, customer communication, and fraud prevention techniques. Ensure that employees know the basics of PCI compliance, to avoid data breaches and other security missteps.
#19 | Failing to Notify Buyers About Product or Service Changes
Products and services, especially those provided on an ongoing, subscription basis, can often be subject to updates, discontinuations, or backorders. If your product or service undergoes any of these changes, customers need to be informed.
When customers receive something different from what they expected, they might initiate a chargeback. Communication through emails, website updates, and even personal calls can ensure that buyers are aware of any changes, and consent to them before they become an issue.
#20 | Failing to Track Customer Satisfaction Metrics
Customer satisfaction is a key indicator of potential disputes. The key to ensuring that customer satisfaction remains high over time is to identify and track relevant customer service key performance indicators.
You can track satisfaction metrics like net promoter score, customer effort score, and customer satisfaction. Failing to do so means missing out on critical feedback that could signal chargeback risks. Regularly solicit and review customer feedback, and take proactive steps to address any consistent issues that are uncovered.
Are There Other Merchant Errors to Consider?
Keeping merchant error chargebacks in check doesn’t have to be a difficult task. A lot of your efforts can be boiled down to a few essential best practices. That said, while the merchant errors we outlined above provide a good starting point, they’re really just the tip of the iceberg.
At Chargebacks11®, we’ve identified more than 100 chargeback-triggering missteps that merchants commonly make. With a comprehensive audit process in place, you can more effectively identify dispute triggers and eliminate them before they result in chargebacks.
Ready to learn more about the simple merchant errors and missteps that could sabotage your business? Contact Chargebacks911 to learn more or schedule a no-cost merchant review today.
How am I causing my own chargebacks?
No one wants to believe they’re the cause of their own problem. However, between 20-40% of all chargebacks are the result of merchant error. There are over 100 different missteps that can lead to chargebacks. It’s hard for merchants to find these mistakes on their own, though, because they’re too close to the situation. An independent review and analysis is often the best solution.
Can all chargebacks be avoided?
Unfortunately, some chargebacks, such as those caused by merchant error, can be prevented by adhering to best practices. Friendly fraud chargebacks, however, are post-transactional, meaning there’s no way to anticipate them beforehand. That makes it critical for merchants to combat charges from both sides, preventing as many as possible while actively representing any that are filed.
Will providing better customer service help with chargebacks?
It will help, and it’s certainly a good place to start. However, while customers are required to contact the merchant before taking action with the bank, research shows that only 14% of cardholders actually do. Even the best customer service can’t help if you’re not even aware of the problem until after the chargeback is filed. Again, a two-pronged approach is the most effective strategy.
Do I need to tighten my fraud filters?
It probably won’t help as much as you think. It’s easy to assume criminal fraud is the greatest risk, but overly-stringent fraud filter rules will dramatically increase the number of false positives. The value of these missed sales can be twice as great as the value of actual criminal fraud.