Reduce Chargebacks and Minimize Headaches
There are two components of an effective chargeback management strategy. First, merchants must aim to reduce chargebacks. Next, they must dispute chargebacks that slip through the protective barrier. It doesn't take a genius to figure out that the better your prevention strategy, the less time and energy you'll need to invest in disputing transactions.
How Important is Chargeback Management?
Many merchants assume chargebacks are simply a cost of doing business:
- 47% of merchants believe fraud is inevitable
- 20% of merchants believe it costs too much to control fraud
But chargebacks are preventable. If merchants take the appropriate actions, it's possible to reduce chargebacks by as much as 40%. And a majority of chargebacks that do get filed can be successfully disputed, with the right strategy. For the average merchant, that means a sizable chunk of lost revenue isn't a "cost of doing business" at all; in fact, it's completely unnecessary.
The Cost of Chargebacks
Turning a blind eye to chargebacks is detrimental to both the business's bottom line and the chance for long-term growth. If merchants aren't dedicated to reducing chargebacks, costs and penalties will quickly add up.
What happens if the merchant is unable to reduce chargebacks?
- Various fees accompany each chargeback. These fees are meant to compensate various people involved in the chargeback process and act as a deterrent to merchants who are indifferent to chargeback rates. Fees can range from $20 to $100 for each chargeback. On average, a merchant pays $2.40 per dollar of fraud. That means a $100 chargeback costs the merchant at least $240.
- Chargebacks forcibly remove funds from the merchant’s account. Unless the merchant’s representment case is successful, that revenue is lost forever. The average merchant suffers 206 fraud-related chargebacks per month, averaging $146 each.
- The merchant also loses the cost of the goods sold. Merchandise associated with a chargeback is rarely returned to the merchant, so the merchant forfeits the money spent on the item and all future profitability.
- The cost of processing the transaction (interchange fee, etc.) is also wasted. If the merchandise was shipped but didn't arrive at its final destination, the chargeback amount will also include the shipping and handling.
- If the merchant chooses to dispute the chargeback, there will also be resources wasted during the representment process. Disputing a chargeback is an expensive, time-consuming, labor-intensive process. Those valuable resources should be used to grow the business, not fix problems of the past.
- Excessive chargebacks also increase the odds of a terminated merchant account.
- A terminated merchant account leads to placement on the MATCH list. Being MATCHed means the merchant is not allowed to obtain another traditional merchant account and is forced to use high risk payment processing. These accounts come with extra fees and a revenue-stealing account reserve.
The Most Important Step to Reducing Chargebacks
The very first thing a merchant must do to reduce chargebacks is determine the actual chargeback triggers. What is causing the chargebacks?
Most merchants rely on the chargeback reason code to determine the transaction dispute cause. Unfortunately, because of friendly fraud, reason codes aren’t as informative as merchants assume.
For example, the cardholder claimed a transaction was unauthorized. In reality, the consumer was actually suffering from buyer’s remorse. The bank issued a chargeback with a fraud-related reason code, and the merchant accepted this reasoning. In light of the information, the merchant beefed up fraud prevention tactics. Unfortunately, those extra fraud detection efforts were unwarranted because the transaction was authorized and friendly fraud was the real culprit.
Unless merchants are able to determine the true cause of chargebacks, all efforts to reduce chargebacks will be unsuccessful.
Chargebacks911® uses proprietary technology called Intelligent Source Detection™. We are able to analyze a transaction dispute and determine the real reason behind the reason code. If you’d like more information about Intelligent Source Detection™, let us know.
Despite the numerous reason codes used by card networks to categorize a chargeback, there are really only three sources of chargebacks:
Once merchants have detected the true cause of transaction disputes, they can begin implementing prevention practices to stop the revenue loss.
Best DIY Methods to Reduce Chargebacks
There are various chargeback prevention methods merchants can implement themselves. These efforts to reduce chargebacks will address the 'low hanging fruit' – the easy-to-prevent transaction disputes that are rectifiable without professional assistance.
To get started, download our free chargeback prevention eBook.
Some of the best DIY tips to reduce chargebacks include:
- Use fraud detection tools like AVS, card security codes, and 3D secure.
- Improve customer service by sharing essential contact information, replace IVR phone systems with human-to-human engagements, reply to emails promptly, and regularly check social media accounts.
- Adhere to business best practices outline by card networks and acquirers.
- Reduce friction associated with recurring payments by sharing the terms of service, offering a "no strings attached" cancellation policy, promptly fulfilling cancellation requests, and communicating rate changes.
- Ensure customers know when products will be shipped and when they should be delivered. Use delivery confirmation for large purchases.
- Write accurate and detailed product descriptions.
- Watch for potential indicators of fraud.
- Use easy-to-recognize billing descriptors.
There are various other chargeback prevention tactics that a professional can help you implement. If you’d like to learn more about the strategies Chargebacks911 uses to reduce chargebacks, contact us today.
Reducing Chargebacks is Only Half the Battle
While preventing chargebacks is a necessary step in the effort to reduce revenue loss, it isn’t the only chargeback management task merchants need to attend to. Representment is just as important.
If you’d like help implementing a more detailed chargeback prevention strategy, one that does more than just address the ‘low hanging fruit,’ let us know. Chargebacks911 also offers the industry’s most effective representment services. Once you’ve gotten a handle on reducing chargebacks, let us help you recover revenue lost to transaction disputes that slipped through your protective barrier.