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Chargeback Prevention Resources Hub

Chargeback Prevention Resources Hub

Learn why chargeback prevention is such an important issue for merchants. We cover the 3 types of chargebacks, available prevention tools, and tips for creating a custom management strategy.

How to Prevent Chargebacks: The Ultimate Merchant's Guide

Chargebacks are a real and growing threat for online merchants. They drain revenue, damage customer relationships, and can even threaten your ability to process payments altogether.

The right chargeback prevention steps, however, can dramatically reduce disputes. In fact, preventing chargebacks may be the best thing you can do to increase revenue and ensure the long-term sustainability of your online business.

This resource will provide a comprehensive overview of the tactics you can deploy to prevent chargebacks and payment disputes, including the eight fundamental strategies that are most effective at reducing chargebacks. For an even deeper dive, though, consider downloading our free Chargeback Prevention Guide, which includes dozens more chargeback prevention tips:

50 Insider Tips for Preventing Chargebacks

Learn More Simple Ways to
Prevent Chargebacks

Save time and protect your revenue with more insider tips and strategies for chargeback prevention. This FREE guide details 50 techniques for shutting down chargebacks before they happen.

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Why Preventing Chargebacks is Important

Chargebacks are not a subject most people like to think about. The payment dispute process can be difficult to understand. And, because consumers dispute a relatively small percentage of overall sales, many merchants simply write off the losses as a “cost of doing business.”

Does that sound like you? If so, you may be drastically underestimating the impact chargebacks have on your bottom line.

Beyond the lost sales revenue and the cost of the merchandise, each dispute will also come with ancillary expenses. These include chargeback fees, administrative fees, and overhead costs like shipping, fulfillment, and customer acquisition costs. Other sources of loss, such as false declines and return fraud, will also likely increase.

According to one study, the average chargeback will cost you $3.60 for every dollar lost to fraud, when you account for all these additional expenses. This interactive tool provides a more realistic view of true chargeback costs.

What are Chargebacks Really Costing You?

Annual Revenue Lost:

+ Chargeback Fees:

+ Admin Fees:

+ Cost of Goods & Shipping:

Total Annual Chargeback Cost:

The direct financial losses associated with chargebacks can be substantial. However, payment disputes also impact your business in less obvious ways. Banks, for example, use chargeback volume as a key indicator of the risk you pose as a merchant. An excessive chargeback rate can lead to the withholding of funds and more restrictive processing requirements. It could even lead to account suspension or outright closure.

Even with all of this at stake, many merchants believe efforts to prevent chargebacks are futile. They’re wrong, of course; with the right strategy, chargeback prevention is very achievable.

Chargeback Prevention Strategy by Source

Cardholders are allowed to file chargebacks for a variety of “official” reasons. Credit card networks provide codes to designate the given claim, but these labels seldom tell the whole story. Ultimately, we can trace all customer disputes back to one of three fundamental sources:

Chargeback Prevention Strategy by Source

Each source represents a unique set of challenges and potential triggers. Therefore, each requires unique prevention strategy.

To reduce chargebacks, you must know the core cause behind each dispute. Reason codes can’t reliably provide this information. It is achieved only through detailed analysis, dynamic strategies, and innovative technologies.

Once you identify your chargeback sources, you should proceed by breaking chargeback prevention strategies down into three stages:

Step 1

Prevent Chargebacks from
Criminal Fraud

Third-party credit card fraud covers any unauthorized transaction made with stolen or breached payment card information. This activity is flourishing on a global scale. In fact, data from LexisNexis suggests that the average US retailer suffered 727 successful fraudulent transactions per month in 2020. Given that the average fraudulent transaction stands at $174, this translates to $126,500 in monthly losses.

Most merchants overestimate the amount of criminal fraud they experience. As we’ll see in a bit, many disputes identified as criminal fraud are actually cases of friendly fraud. However, you can’t identify those friendly fraud chargebacks until you first eliminate the possibility of criminal activity.

Criminal fraud chargebacks are generally less ambiguous than other disputes, which makes preventing them a more straight-forward process. Once you identify the extent of the problem, you can begin developing a strategy using fraud scoring, card network verification tools, internal manual review processes, and detection processes.

Step 2

Prevent Chargebacks from
Merchant Errors

“Merchant error” covers a wide range of seemingly minor policy and procedural missteps that can trigger chargebacks.

You may not be able to identify a singular, glaring mistake that has a measurable impact. However, issues like unclear policies, processing shortcuts, and simple oversights can collectively account for many of the chargebacks you experience. In fact, somewhere between 20-40% of all chargebacks are likely cases of merchant error.

Again, the good news is that these chargebacks are preventable...if you can identify the errors responsible. This requires an in-depth, end-to-end evaluation of your business. You must examine your policies and practices, reviewing and rewriting them as necessary. You must check every element of the sales process for chargeback triggers.

One problem, though: the typical merchant is too close to their business to perform this type of unbiased analysis. Intimate, first-hand knowledge of the business seems like an advantage, but it can actually blind you to missteps that would be more obvious to an outside observer. That’s why the assistance of a third-party expert is almost always more effective.

Step 3

Prevent Chargebacks from
Friendly Fraud

So, you’ve eliminated the majority of criminal fraud and merchant-error chargebacks. That means almost all remaining claims you encounter should be cases of friendly fraud.

Preventing chargebacks from friendly fraud is a challenge. The fraud occurs post-transaction, making it hard to anticipate or mitigate the threat using traditional prevention tactics.

For most online retailers, the best option will be to challenge illegitimate claims through representment. If you’re confident that the chargebacks in question are cases of friendly fraud, you can reasonably expect a high number of chargeback reversals, regardless of reason codes. Benefits include both revenue recovery and an improved reputation with acquiring banks.

That’s not to say it’s impossible to prevent chargebacks from friendly fraud, though. Chargeback alerts and network inquiries send you notifications of impending disputes. These allow you to avoid a chargeback by refunding the order in question, or providing additional transaction details to resolve inquiries.

8 Fundamental Chargeback Prevention Strategies

The occasional payment dispute may be an unavoidable reality. That doesn’t mean you’re a helpless victim, though. A custom mitigation plan—one designed to prevent chargebacks whenever possible—can significantly lessen the negative financial impact on your business.

50 Insider Tips for Preventing Chargebacks

Learn More Simple Ways to
Prevent Chargebacks

Save time and protect your revenue with more insider tips and strategies for chargeback prevention. This FREE guide details 50 techniques for shutting down chargebacks before they happen.

Free Download

Haphazard chargeback prevention efforts will be ineffective. For optimal results, you should start by focusing on the following eight key areas:

Use Available Prevention Tools

Use Available Prevention Tools

Fraud is dynamic. It evolves constantly as technologies change, so risk mitigation strategies must be equally adaptive.

Several prevention methods have been proven to help detect fraud and validate cardholders. You should take advantage of these readily available prevention tools.

Card network tools such as Address Verification Service (AVS), card security codes (CVV), 32D Secure 2.0 (3DS2), and Visa Account Updater (VAU) are all methods of validating a shopper’s identity. Using two (or all of them) together can increase accuracy.

There are other chargeback prevention tools available as well. Chargeback alerts, for example, provide advance notice of disputed transactions. Automated response programs provided through the card networks, like Order Insight (for Visa) and Consumer Clarity (for Mastercard) work in real time to resolve inquiries. These tools help clear up cardholder confusion and prevent cases of chargeback fraud.

Learn More About Chargeback Prevention Tools
Improve Customer Service

Improve Customer Service

Outstanding service is the best defense against friendly fraud. To help prevent chargebacks in this area, customer service reps must be helpful, responsive, and available to customers before, during, and after the sale.

You should ensure that dealing with your customer service department is significantly easier than calling the bank. Contact phone numbers, email addresses, even social media accounts should be prominently displayed on website pages, order blanks, receipts, packaging, and more.

Today’s customers expect swift, helpful responses to inquiries. Live representatives should answer the phones, preferably in three rings or less. Emails and social media contacts should be acknowledged within an hour at most. And if shoppers can order 24/7, you should consider making round-the-clock customer service equally accessible.

Learn More About Chargeback Prevention Through Customer Service
Better Order Communication

Better Order Communication

No matter what complications arise while fulfilling an order, customers must be kept apprised of the situation. Consumers realize that problems come up unexpectedly, and most will be understanding if they’re notified right away. Without an explanation, however, it’s easy for shoppers to assume the worst, get angry, and call their bank.

From checkout through order delivery, the more contact you have with customers, the more confident those customers will feel. This includes communicating at every important stage of the fulfillment process.

Order confirmations should include proposed shipping and arrival dates. You can email tracking numbers when the order is en route, and provide delivery confirmation for high-value items. Updates at key points in the shipping process helps keep delivery expectations realistic.

Learn More About Optimizing Post-Transaction Service
Eliminate Merchant Error

Eliminate Merchant Error

You may be surprised to discover the number of chargebacks that result from minor lapses and procedural missteps. Errors may include submitting incorrect information or not requesting authorization. More dangerous are triggers hidden in normal processes, which can potentially cause multiple disputes on a daily basis.

Fortunately, you can prevent chargebacks resulting from merchant error in just about every case. You should evaluate all aspects of your operations to identify and remedy potential chargeback triggers. You must monitor day-to-day practices to ensure adherence to best practices at every level.

This also applies to fulfillment, shipping, and return policies. Frustrating or hard-to-understand policies encourage unhappy customers to file chargebacks. Clear, concise, and flexible policies tell shoppers that they can resolve issues with a simple email or phone call to customer service.

Learn More About Avoiding Common Merchants Errors
Provide Authentic Marketing

Provide Authentic Marketing

To prevent “item not as described” chargebacks, all service and product descriptions must be as factual as possible. You should use detailed descriptions in place of vague marketing slogans that could misrepresent the product. Focused pictures from multiple angles, along with clear specifications such as size, color, and brand, help ensure customers aren’t surprised when their order is delivered.

Inflated descriptions can lead shoppers to feel deceived when they receive the actual product. The cardholder might suspect that you’re untrustworthy and dispute the transaction with the issuer. Even worse, that customer may now be lost for good, preventing future sales.

It’s up to you to provide the most accurate details, images, and specifications for all products and services to prevent chargebacks.

Manage Recurring Payments

Manage Recurring Payments

A recurring payment (subscription) business model offers benefits for both merchants and customers. However, unique chargeback risks come along with those advantages.

Consumer expectations change when they move from being one-time purchasers to long-term subscribers. You must be prepared to respond quickly to inquiries, and be proactive with initiating communications.

Recurring billing also demands operational transparency. Terms of service should be clear, concise, and readily available, even before the initial transaction. This includes automated billing procedures, contract lengths, and additional costs (such as early termination fees).

Above all, customer cancellations should be as simple and pain-free as possible. If subscribers feel they were deceptively locked-in to a service they no longer want, they will bypass your policies by filing a chargeback.

Learn More About Preventing Recurring Billing Chargebacks
Combat Friendly Fraud

Combat Friendly Fraud

As we mentioned earlier, friendly fraud is hard to prevent because it is hard to predict.

Most of the above suggestions may help curtail some friendly fraud chargebacks. However, there are other, more specific steps you can take. Signed delivery confirmation, for example, may stop customers from falsely claiming the purchased items never arrived. Unsigned confirmation on its own is not enough to win a reversal, but even that can be effective when combined with additional evidence.

Friendly fraud disputes can be initiated unintentionally by something as simple as a customer inquiry. An issuer may file a chargeback when the cardholder only meant to ask a question about a charge. You can avoid this scenario by making sure the billing descriptors appearing on your customers’ payment card statements clearly indicate where the transaction was made.

Perhaps the best step you can take to prevent chargebacks resulting from friendly fraud is to challenge invalid disputes. Banks may take your refusal to fight illegitimate disputes as an admission of guilt. When merchants fight back against friendly fraud, it sends a message to both banks and cardholders, thus building a better reputation, stronger relationships, and discouraging future friendly fraud.

Learn More About Preventing Friendly Fraud Chargebacks
Seek Professional Assistance

Seek Professional Assistance

Implementing these do-it-yourself prevention steps will prevent a few chargebacks. They address the “low hanging fruit;” the easily preventable chargebacks caused by obvious mistakes and mismanagement.

Most types of chargebacks, however, can only be countered with intensive management efforts that surpass DIY tactics. There is also the matter of having access to the proper tools. This is where professional assistance from a chargeback prevention service really makes a difference.

Intelligent Source Detection™ technology from Chargeback911®, for instance, is the only system on the market designed exclusively to look beyond reason codes to pinpoint the source of each individual chargeback.

Preventing chargebacks means retaining more revenue, but for many merchants, it’s also the key to sustaining the business’s longevity.

Learn What To Expect From Professional Chargeback Assistance

The Bottom Line

eCommerce technology is constantly evolving, and new chargeback threats appear daily. An effective chargeback management strategy must be flexible enough to identify new trends and techniques, counteract new technology, and adapt on the fly to a constantly shifting landscape.

Chargebacks911 offers the most comprehensive chargeback management services and products available on the market today. No other provider can deliver our level of transparent, end-to-end chargeback management, going beyond prevention to revenue recovery and future growth.

Whatever you need to prevent chargebacks, we can help. Contact us today for a free demo.

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