What is a chargeback?
To put it simply, a chargeback is a transaction reversal initiated by a cardholder. Cardholders raise a dispute with their issuing bank and if substantiated, the transaction is then refunded, leaving the merchant out of pocket for the refund.
Chargeback requests can be genuine (‘friendly fraud’) or they can be malicious (‘chargeback fraud’). Friendly fraud involves cardholders who do not recognize a credit card transaction or are unsure of how to request a refund, in fact, merchants report that 42% of chargebacks are friendly fraud.
Chargeback fraud involves a customer fraudulently requesting a chargeback despite having received their product or service.
How do chargebacks affect a business?
Chargebacks can affect a business in multiple ways. The first and most obvious is the financial loss. When a chargeback occurs, the funds for the original transaction are returned to the customer and the merchant is typically charged a fee. This means that the business not only loses the sale but may also incur additional costs.
Following financial loss is the damage to the reputation of the business. If a business has a high number of chargebacks, it can damage its reputation and standing with their acquirer and in some cases, result in the loss of banking privileges.
Why do chargebacks occur?
There are three main reasons why a chargeback may occur: Fraud The cardholder will file a chargeback if a credit card is used without their knowledge or authorisation. This is often the case when a credit card is stolen, or card details are obtained via another illegal method such as phishing. Here at payabl. we offer a full range of fraud management tools that can help protect both you and your business and mitigate the risk of fraudulent transactions.
Undelivered goods
These chargebacks occur in cases where cardholders do not receive their goods or are dissatisfied with the customer service, they receive during shipping enquiries. Of course, there are instances when customers will claim not to have received their products in order to request a refund. You should therefore always include tracking numbers for every order shipped in order to prevent missing goods.
Technical issues
This may happen when a customer is accidentally charged twice for a single purchase. In such cases, make sure you inform your customers that they can contact you directly so that you may resolve the issue for them before resorting to a chargeback.
How does the chargeback process work?
Chargebacks are initiated by cardholders or the issuing bank. If the chargeback is due to a transaction error, the issuing bank will initiate the process and your acquiring bank will handle the case and submit the relevant documents on your behalf.
When a chargeback is initiated by the cardholder, it will come directly to you, and you can then decide whether to accept or challenge it. In case you choose not to accept the chargeback, you’ll need to submit relevant documentation to your acquiring bank to prove your case. The acquiring bank will then forward this to the cardholder’s issuing bank, who ultimately has the final say on whether the chargeback will proceed.
Disputing chargebacks will cost you a substantial amount in additional fees and could even damage your relationship with your acquiring bank.
Preventing Chargebacks
Whether you are a small business or a large enterprise, it’s important to have a chargeback prevention strategy in place, as well as a payment gateway equipped with strong fraud prevention features.
There are some simple ways you can protect your business and avoid going through the chargeback dispute process.
Follow protocol.
Make sure you take all the necessary steps to capture customer verification information, such as IP addresses, digital signatures and card CCVs. Additionally, utilize authentication services such as Verified by Visa or MasterCard Identity Check, so that any fraudulent transactions are shifted to the issuing back rather than your business.
Use recognizable payment descriptors.
These are descriptions which appear on cardholders’ credit card statements outlining what the card was used for. It’s important for these descriptors to be as clear as possible and to include your name or website to avoid confusing the customer who may not recognize the payment and request a chargeback.
Make sure your customer service is efficient.
42% of customers expect a response within one hour. Most credit card processors provide chargeback notifications that allow you to quickly respond to a customer who is disputing a charge. By addressing these issues promptly and efficiently, you may be able to resolve the issue without resorting to chargebacks.
Be vigilant with fraud.
Our secure payment processor systems, sophisticated fraud prevention tools, and AI technology identify potential instances of fraud even before they happen and take action to protect our merchants from possible chargebacks.
Clearly outline your returns and refunds policy.
Make it easy for your customer to return a product and request a refund if they need to, so that they won’t have to resort to contacting their bank to request a chargeback.
Train your employees.
While technology can be very helpful in identifying fraudulent transactions, it is just as important to train your staff to be on the lookout for suspicious activity and flag it immediately.
Keep solid records.
Accurate records of card transactions, amounts, and authorization details are useful documents to have in your arsenal if you ever need to challenge a chargeback claim.
Send order reminders.
Customers sometimes forget that they subscribed to a specific service or product, and they might be confused upon seeing the payment and request a chargeback. By sending frequent reminders to ensure that your customers are still interested in the product or service for which they subscribed, you can help prevent chargeback issues.
The Bottom Line
With eCommerce businesses booming in an increasingly online world, chargeback threats will inevitably become more frequent. We can help you implement a solid chargeback management strategy that is flexible and adaptable to new trends and technology, as well as a robust fraud management arsenal, so that you can prevent chargebacks, save your revenue, and secure your company’s growth, without reducing conversions at checkout.
Want to talk about how payabl. can power up your payments? Contact us now.