Easily Reduce Chargebacks With This 6-Step Strategy
Too many merchants see chargebacks as an unavoidable cost of doing business. The truth, however, is that many chargebacks are preventable if you have the right strategy. In fact, the average merchant can reduce chargebacks by 40% or more with a few simple tweaks in policy and procedure.
To do that, though, you need to understand that a good chargeback management strategy incorporates a few key components involving chargeback prevention and representment. This means fighting illegitimate chargebacks while also taking steps to prevent future disputes.
If you’re looking for the easiest way to reduce chargebacks, you can skip to Step 5.
So, where do you start? Here’s a six-step strategy that will help you reduce chargebacks, recover revenue, and protect your business.
Gauge Your Exposure
The first step to reducing chargeback issuances is to determine how vulnerable you are to chargebacks, and how much you stand to lose.
The average merchant suffers 206 fraud-related chargebacks per month. Of these chargebacks, the median dispute will cost an average of $146. Thus, the average merchant can expect to lose a little more than $30,000 every month to direct chargeback losses. We say direct, because that’s ultimately just a small subset of the total.
The2020 LexisNexis True Cost of Fraud study finds that, for every dollar lost to fraud, you end up losing an additional $2.36 in fees, merchandise, and other costs. Thus, the financial impact of your chargebacks may be significantly greater than you realized at first glance.
Source Your Chargebacks
Once you know what’s at stake, the next step to reduce chargebacks is to determine the triggers that cause them.
Each chargeback comes with a reason code attached by the issuing bank that filed the dispute. This reason code is meant to explain the rationale behind the dispute. For instance, if the cardholder claimed that a charge on their account was unauthorized, the bank will indicate this by attaching a fraud-related reason code (such as Visa reason code 10.4 – Other Fraud: Card-absent Environment/Condition or Mastercard reason code 4837 – No Cardholder Authorization). Reason codes are unfortunately often misleading.
Despite the dozens of reason codes used by card networks, the truth is that there are only three basic chargeback sources:
Genuine criminal activity. This occurs when bad actors gain access to cardholder information and make unauthorized transactions.
This covers any seemingly-minor misstep, including faulty business practices, unchecked policies, and processing errors.
A chargeback filed by a cardholder without a valid reason. This may be a simple misunderstanding about procedure, or it may be a case of a cardholder deliberately exploiting loopholes in the chargeback process (a practice known as “cyber shoplifting”).
Sourcing disputes is absolutely necessary to reduce chargebacks. However, doing it on your own is a challenge; as a merchant, you don’t have access to the comprehensive data needed to drill down and accurately gauge disputes. We recommend using a tool like Intelligent Source Detection to get a more accurate impression of your dispute activity.
Eliminate Criminal Fraud
Before you can take action to reduce chargebacks caused by merchant error or friendly fraud, you first need to rule out the possibility of criminal fraud. This is because all chargebacks are interconnected, and if you let preventable criminal fraud attacks go unchallenged, it will generate unreliable data that makes it harder to stop chargebacks rooted in other sources.
Stopping criminal fraud may be the most straightforward part of the process. In short, you need to deploy a multilayer strategy with complimentary fraud detection tools that work together to intercept as many threats as possible. Your strategy should include:
- Device Fingerprinting
- Velocity Limits
- Address Verification Service (AVS)
- Fraud Blacklists
- CVV Verification
- 3-D Secure Technology
Of course, these tools should be backed by dynamic fraud scoring provided by a reputable vendor. The more tools you have at your disposal, the more accurate your decisioning will be. Better decisioning will allow you to stop fraud and reduce chargebacks without seeing an uptick in declines.
Eliminate Merchant Error
There are many more pitfalls involved in the average transaction than you probably realize. In fact, we identified 106 potential triggers that could lead to a chargeback. These can come up before, during, and even after the transaction is complete.
We recommend the following best practices to help cover the basics of reducing chargebacks caused by merchant error:
- Display essential contact information in a prominent place on every page of your site.
- Replace IVR phone systems with live, round-the-clock human support.
- Reply to emails promptly, and check social all media accounts multiple times each day.
- Adhere to all business best practices outlined by card networks and your acquirer.
- Make your policies and terms of service straightforward and easy to understand.
- Offer a "no strings attached" cancellation policy for recurring billing.
- Fulfill any cancellation requests quickly and provide verification to the customer.
- Ensure customers know when products will be shipped, and when to expect delivery.
- Use delivery confirmation for large purchases.
- Write accurate and detailed product descriptions.
…just to name a few. For a more comprehensive approach, we offer a full 106-point Merchant Compliance Review aimed at helping you stamp out merchant error chargebacks. Click here to learn how much you stand to save.
Stop Chargebacks Before They’re Issued
If you’re reading this, there’s a decent chance you’re already seeing your chargeback issuances spike. This is bad; not only are you losing sales revenue and merchandise and paying unnecessary fees, each chargeback also negatively impacts your chargeback rate.
Visa and Mastercard each have their own chargeback limits, and if your chargeback rate breaches those thresholds (or even comes close), your bank account may be frozen or closed entirely. If you’re in danger of breaching these chargeback thresholds, you can use an alerts service to quickly reduce chargeback issuances.
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Enriched chargeback alerts intercept customer disputes before they become a chargeback. This allows you to preempt pending chargebacks by cancelling future billings or refunding the customer.
Chargebacks911® delivers the widest chargeback alert coverage available. We combine our exclusive, propriety alert network with those of other third-party providers, all accessible from the same dashboard. Click here to learn more about alerts and see how you can immediately stop chargebacks and prevent a threshold breach today.
Fight Back Against Friendly Fraud
Reducing chargebacks caused by friendly fraud is demands a different approach from that used in cases of criminal fraud and merchant error. Friendly fraud is generally post-transactional, meaning that it really only become fraud at the moment the cardholder requests a chargeback.
You can prevent some friendly fraud with practices like using easy-to-recognize billing descriptors. This will prevent cardholders from seeing a transaction appear on their statement and suspecting it of being an unauthorized purchase. It will also help to be clear and straightforward about any changes in services or fees. Generally, though, the primary method to contend with friendly fraud will be the representment process.
Representment allows you to respond to a dispute that was filed without a valid reason. It’s important that you engage in this process; not only will it let you recover revenue, it will also help retrain customer behavior to prevent chargeback scams over time.
Chargebacks911 was the industry’s first solution provider to bring tactical representments to the market. Our strategic dispute process ensures guaranteed profitability and sustainability. We’ve helped hundreds of merchants recover millions of dollars that would otherwise be lost to friendly fraud. Click here to learn how much stand to save by letting Chargebacks911 take the fight to the fraudsters.
Save Time. Recover Revenue.
If there’s just one point you take away, let it be this: there’s no simple, one-step solution to reduce chargebacks.
Chargeback management is a complex process that requires a coordinated, well-thought-out strategy. Unfortunately, most merchants simply don’t have the time, resources, or expertise necessary to stop chargebacks and protect their business. The good news is that there’s a better option available.
Chargebacks911® is the only chargeback management company to offer end-to-end chargeback management. Our industry-defining approach focuses on identifying chargebacks by their source, then deploying solutions devised by some of the leading experts in payments and fraud prevention. Don’t lose another dollar—contact Chargebacks911 to reduce chargebacks and start recovering revenue today.
How Can I Reduce Chargebacks?
Chargeback reduction requires a comprehensive approach that begins by identifying chargebacks based on their source (criminal fraud, merchant error, or friendly fraud). You can then deploy the right tools and strategies to address each chargeback trigger individually.
Can I Refuse a Chargeback?
No; unfortunately, as a merchant, you cannot reject a chargeback. If a customer files a chargeback that you believe is illegitimate, you can fight the dispute through the chargeback representment process.
What are Some Ways to Reduce Chargebacks?
To reduce chargebacks, you need to first eliminate criminal fraud using a multilayer fraud strategy backed by professional fraud scoring. You must then diagnose any potential merchant errors that might lead to a chargeback. Finally, you can fight any remaining chargebacks caused by friendly fraud through representment.
What is the First Step to Reduce Chargebacks?
Before you take any steps against chargebacks, you should gauge your exposure and determine how much of risk chargebacks pose to your business. Remember that the average merchant loses $3.36 for every one dollar in direct chargeback losses.
Can a Chargeback be Reversed?
Yes; you can fight a chargeback through the representment process. This is an important part of any strategy to reduce chargebacks. Remember, though: you can only fight chargebacks that are genuine cases of friendly fraud.