Credit card chargebacks can put your business at serious risk.
A chargeback occurs when a customer disputes a charge on their credit card and wins. The payment is reversed, and the merchant is also assessed a chargeback fee.
Chargebacks are problematic not only because they can be costly, but also because a business with a chargeback-to-transaction ratio (# of chargebacks/# of transactions) over 0.9% can be classified as high-risk, resulting in higher processing fees, monthly fines or even worse, termination of the business’ merchant account.
- Chargebacks can be reduced with a well-planned strategy.
- Customers dispute transactions for a variety of reasons, ranging from forgetfulness to product quality issues to fraud, so a robust chargeback minimization strategy needs to address a number of root causes.
These tips from Verisave will help you create a holistic strategy to minimize chargebacks for your business:
-
- Communicate effectively and set appropriate customer expectations.
-
Provide accurate product descriptions and photos
-
Set clear shipping policies/timelines, including confirming an order has shipped, providing tracking information and proactively notifying customers of delays
-
Poor communication and misaligned expectations are the root cause of some chargebacks. An inaccurate product description can trigger a disputed transaction because the customer did not receive what they were expecting. Similarly, an unexplained shipping delay may cause a chargeback by making the customer to believe the order was lost in transit. Clear, proactive communication can prevent these types of problems.
-
- Use clear billing descriptors.
-
Make sure your billing descriptor matches the name under which you do business
-
Include contact info in the billing descriptor (e.g., a phone number)
-
If a customer does not recognize your business name, they will likely dispute the charge. If you do business as Arty’s Repair Shop but the billing descriptor on the customer’s statement is AJ LLC, your customer may not realize the charge is from your company. Contact information should also be included in the descriptor as that will make it more likely the customer contacts your business directly if there is an issue, which gives you a chance to resolve the issue and head off a potential chargeback.
-
- For subscription billing, ensure terms and cancellation policies are clear.
-
Ensure subscription terms are clearly explained at point of purchase
-
For quarterly or annual billing cycles, send a reminder in advance of the bill which includes the price the customer will be charged
-
Have transparent cancellation policies, and make it easy for customers to cancel if they so desire
-
With subscription and recurring billing models, ensuring customers understand when and what they will be billed helps minimize chargebacks. Customers who are not billed monthly may forget when their next payment is due, so it is a good practice to send reminders in advance. Clear, easy to follow cancellation policies will also help mitigate chargebacks. (Note: In 2022, MasterCard is introducing new subscription billing requirements for the US market, focused on enhancing cardholder notification, cancellation, and disclosure standards to reduce consumer complaints and chargebacks.)
-
- Give excellent customer service.
-
Address customer inquiries and complaints in a timely fashion
-
When resolving an issue or complaint, be clear about next steps and when the customer should expect follow-up communications
-
Include a FAQ page on your website that addresses common customer questions
-
Sometimes a customer will dispute a transaction because the merchant does not address their problem promptly or effectively, giving the customer the impression that the merchant is doing nothing or does not care about fixing the problem. Promptly responding to customers and clarifying the steps that will be taken to address the customer’s issue will not only mitigate chargebacks but can also generate positive word of mouth for your business.
-
- Take preventative measures to mitigate fraud.
-
Preventing a fraudulent transaction from happening will prevent a chargeback from following later. Unfortunately, fraud is on the rise, so it is important to put fraud mitigation measures in place. Measures which can be taken to help identify and prevent fraudulent transactions include:
-
Card security codes (CVV)
-
Address verification services (AVS)
-
Email verification methods
-
Phone number reverse lookups
-
Shipping and billing address confirmations
-
Velocity checks which identify abnormal behavior patterns
-
- Proactively respond to chargebacks.
-
When you receive notice of a chargeback, reach out to the customer quickly to find out what the problem is so you can work together on a mutually agreeable solution that will get the customer to reverse the chargeback. Even if this means offering the customer a refund, that can be preferable to spending a lot of time and effort challenging the chargeback, and the fees that you will have to pay if your challenge is not successful.
If a chargeback is not justified and you choose to fight it, it is important to have accurate records of the transaction (date/amount/authorization information), as well as signed contracts/receipts, and delivery confirmations. This documentation can help you win against a dishonest customer or a customer who forgot the purchase.
-
- Keep up with changing chargeback rules.
- Dispute and chargeback rules change over time, so it is important to keep up with the most recent developments. Most recently, in October 2021, VISA updated its dispute rules for the US market, in response to pandemic driven increase in dispute volume. Changes included adding wait time limits before issuers can issue chargebacks for certain types of disputes and use of compelling evidence for dispute responses.
Creating a holistic strategy that proactively addresses the varied causes of chargebacks can reduce the time, effort, and money that your business spends fighting chargebacks. Follow these tips to create a robust chargeback mitigation strategy for your business.
And for an even more proactive approach to chargeback protection, visit our partners at Chargeback Gurus.
