Chargeback: Why it Happens And Tips On How to Avoid It

From company’s point of view, chargebacks are usually a bothersome, unexpected setback in their trading routine. If you already had to deal with it, you can surely agree it is not the most enjoyable process to take care of, as it involves time, expenses, paperwork, and lots of patience.

On the top of it, chargebacks can take a toll on your relationship with customers and damage your reputation with payment networks if it happens often. As you can see, it is overall a bad thing for your business.

For the lucky ones that have not experienced it yet, we can explain it better:

Chargeback is a practice activated by a customer that reverse the charges – from the seller to the buyer’s account – after a purchase was made.

It usually happens to credit cards purchases, even though is not so uncommon to see it in electronic bank drafts, debit cards, and online payment services.

On the other hand, this is a service designed to protect the consumers from unauthorized charges on their cards or accounts: as they choose to lead a charge to the dispute, the credit card issuer holds the payment from the business and demands all the relative documentation to evaluate what really happened. In case of defeat in the dispute, besides the money from the sale (that stays with the customer), the company usually have to pay an extra chargeback fee, like a penalty.

But why does it happen?

Well, there are five main reasons that can lead a customer to request a chargeback:

  • The product/service was not received;
  • The product/service does not correspond with the order or with the customer’s expectations;
  • The charge amount is incorrect or it was charged more than once;
  • The customer does not recognize the charge on its account statement;
  • It can happen due to a fraudulent transaction, when a third party has unduly used someone’s identity to make the purchase.

To be alert and recognize the reason of a chargeback are the first steps to avoid future ones.

But don’t worry, there are many other strategies you can use to prevent it from happening, without the need of radical changes in your business payment process.

So, are you interested about learning how to reduce your chargeback rates? These are 10 initiatives we would especially recommend to you. Do not miss them out!

10 Simple Measures to Prevent Chargebacks

Be Cautious

Ask for a valid, verifiable identification from all your customers. The same way internet makes our life easier for so many things, including online transactions, it also opened the doors for malicious users that try to take advantage of its virtual attribute.

Store All Data

Keep the records of all orders and centralize all customer information with CRM tools. Customer relationship management softwares are an excellent alternative to organize your customers data, check their personal information, and have a better notion of their purchasing patterns, so you can spot a possible contradiction.

We suggest you to try Pipedrive if you want to have a better idea of how this works. They have a 30-days trial period, and it is a very intuitive, functional online sales management platform to use.

Get the Right Payment Processor

Make sure you are using a safe payment processor, that suits well your ecommerce model and needs. To get more information about payments work for ecommerces, I highly recommend you to also read this post on payment processing.

Track and Investigate Suspicious Transactions

Learn how to detect frauds and choose payments systems that give you alerts on any sign of fraud (billing and shipping address that do not match, wrong passwords, etc.). If necessary, call the buyer to confirm the information before accepting or denying a purchase. Finally, keep updated about new methods that can help you avoid frauds, reviewing your security processes often.

Employ a Easy-to-verify Business Name

To facilitate the charges verification, choose a recognizable business name to display in the payment processor statements, so it is easier for your customers to identify and remember the purchase.

Provide Good Information About your Products/Services

Feed your webpages with accurate descriptions and images of the products, so the buyers do not feel misled by the information you provide when the product arrives. This can surely be a valid reason for a chargeback.

Invest in FAQ and Self-help Channels

A FAQ page is another useful tool to communicate with your customers about problematic situations, including chargebacks, avoiding customer complaints. It is important to elaborate nice and clear instructions about your ecommerce return policies, and show them how easy it is to contact you if they have any doubt or complaint.

In this sense, ecommerce chatbots are considered the latest trend on ecommerce websites. Briefly, they are computer database programs which interacts with the users simulating how a real person that would respond, using keywords and natural language, and making the communication even easier to the customers. Another benefit is that chatbots are available 24 hours, 7 days a week.

Be Nice

Prepare your customer services team so that when they get approached by a customer to explain a charge or respond to a complaint, they’ll provide them with the best after-purchase treatment. Chargebacks are usually the last resort for many customers, and innumerous could have been avoided if companies had efficiently listened and courteously answered to their customers;

Choose Your Battles

When it is practicable and beneficial (for a very loyal customer, for example), prefer to refund them before starting a chargeback process. Maybe you will end up losing some money or a item in the inventory, but you avoid the stress of disputing for it, and you be showing that you are actually worried about their satisfaction;

Delivery Service Matters

Use a trustful delivery service, that enables you to track your deliveries, and always request signature upon arrival.

“Done! Am I a chargeback free company now?”

Sorry to tell you such title does not exist. Even being extremely cautious and implementing all the previous measures we told you about, your ecommerce can still face a chargeback at some point of its life. Unfortunately, they are not 100% avoidable, especially if you desire to keep growing in the online retail market: the bigger you get, the higher are the risks you will be taking.

So you better get familiar to how the process works and get prepared in case it happens to you, right?

The process might change a bit from a payment company to another, but here is the essence of it:

How chargebacks really work?

The chargeback process initiates when a consumer notifies its payment service provider that a problem occurred with a purchase transaction. It can be through a call or an email, but it should basically provide a detailed description of what happened and, when available, evidences of the transaction, such as bank statements or order confirmations. In few words, it means a dispute was opened.

In this initial phase, the payment institution can already freeze the merchant’s account and give a trust credit to the consumer based on the circumstances of the case, for example, when it looks clear that the customer was charged twice for the same purchase.

Then they will analyze what happened, contacting all parts involved in the transaction and asking the seller more information about that charge. Here you see the importance of requiring, organizing and saving both customer and purchase data. The merchant will have here the possibility to explain its version of the facts and prove it has correctly executed the order, therefore, the charge is rightful. Or not. The company can realize a mistake was made and that the consumer has the right to get its money back.

The final decision will be taken by the bank or payment processor, that will also finalize the whole process, returning or keeping the money of the winning part.

Final considerations

Chargebacks can be another symptom of your ecommerce business weak points, so be attentive to understand why it is happening to you.

Maybe your website system is not organizing the order information properly or maybe the delivery service is failing somehow. It can also be that your product description images don’t represent accurately your product and disappoints your customers.

Whatever the reason is, by knowing it and focusing on ways to prevent it, you will be strengthening your business processes and avoiding unnecessary losses.

In general, it seems that credit card companies and payment services tend to show more empathy on the side of the consumers, so choosing a payment processor you can trust and that offer good anti fraud and chargeback disputing services, is already an excellent start for your ecommerce. 

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