The chargebacks are well-known for incurring huge losses and trashing a company’s image. They are nothing but a menace to the e-commerce merchant community, especially for high-risk businesses. If they don’t focus on having mindful control and taking bold steps to prevent chargebacks and combat online fraud, a destructive turn of events, like losing money & valuable resources and paying hefty penalties, can put their e-commerce store and its reputation in danger.
What are Chargebacks Exactly?
A chargeback refers to the credit card payment of goods or services returned to the customer from a merchant or directly from the bank due to some issues. Simply put, they are disputed transactions that are reversed to the buyer after they successfully contest a charge on his transaction report.
The Most Common Reasons for Chargebacks
Friendly Fraud: Most cases of chargebacks are as a result of friendly fraud where consumers might be trying to get their hands on products without paying a single penny. Statistically, around 80 percent of chargebacks are attributable to this type of fraud. They misuse the dispute process and claim that the transaction is not authenticated or that they never received any product or that they’ve returned the product but didn’t get any receipt or notification for their return, demanding that the money should be refunded.
Criminal Fraud/No Authorization: There’s a misconception that most chargebacks happen due to identity theft and other fraudulent activities. However, the percentage of criminal fraud is between 1 percent and 10 percent, which is comparatively low than friendly fraud. As the name suggests, criminal fraud represents any unauthorized transaction made on the credit card holder’s account. It transpires when someone gains access to another individual’s e-commerce account and uses their card or banking details to make purchases without their consent or knowledge. Luckily, businesses can protect themselves against the possibility of criminal chargebacks.
Merchant Error: Such errors can occur when the items purchased by customers don’t get shipped or meet the product description written by the seller or the products received are defective. Various studies and surveys found that approximately 20 to 40 percent of chargebacks are caused by the mistake of the merchant, which include unwanted recurring transactions, procedural oversights, poor customer service, incorrect prices, and wrong identifiers. While the act can be inadvertent in nature, the consequences of this dispute can be extremely damaging to the reputation and bottom line of an organization.
Technical Errors: Chances are that customers can also dispute a transaction if there is a technical problem or credit card processing error, including duplicate payment processing and human error.
Steps to Protect your Business from Chargebacks
Although it’s hard to stop users from initiating a chargeback, here are some best practices that will help high-risk e-commerce businesses reduce chargebacks, fight online fraud, secure payment processing, and even eliminate fraudulent claims.
1) Use a Business Name that Your Clients Recognize
Your billing descriptor is what your customers see on their credit card bills or online statements. This credit card descriptor helps clients identify to whom they have made payment for a particular transaction. Most customers file a dispute because they simply don’t recognize the company’s name and services that appear on their billing receipts. If the name of your brand is different, either slightly or entirely than your legal name, you should use the name you’ve branded your website with as your descriptor. Even if you include your legal name in some way on your site, odds are, your visitors and consumers might not read or remember it.
2) Improve your Credit/Debit Card Security Rules
To put a stop to criminal fraud and unauthorized transactions, high-risk merchants need to take some precautions and deploy improved control and security rules given below:
- Ensure that the credit card that is being used to buy your goods or services is not stolen.
- If you are processing payments through a third-party account, make sure that you are using reliable, robust fraud detection services.
- Obtain transaction authorization approval via a call or message.
- Verify the name, address, phone number, and other customer details with the issuer bank of the cardholder.
- Ask the customer specifically for address verification and card verification value code, if you accept telephone orders.
- Keep your system up-to-date to reject any invalid or expired credit/debit cards.
3) Keep a Record of your Day-to-Day Operations
Sometimes, the chargeback issued is not because of a fraudulent transaction or card use, but due to the seller’s mistake. For instance, if products bought by the customer are substandard or damaged or if the customer didn’t receive any items, consumers can initiate a dispute against the merchant. For this reason, the seller should keep their operational policies and practices updated. Below are some tips to accomplish it:
- Describe your products and services properly
- Make sure that the price of your items is reasonable
- Use a proper descriptor for your charge
- Deliver the correct products/services
- Ship the items to right address
- Keep your return and refund policy clear
- Provide exceptional customer service
- Be accessible and upfront with your customers
4) Use a Payment Protection & Management Solution
Leveraging an end-to-end payment processing and fraud detection tool helps businesses of all sizes secure their payments, prevent up to 50 percent of fraudulent transactions before they turn into chargebacks, and also eliminate deceitful chargebacks across the e-transaction lifecycle. With the alarming rate of online criminal fraud and chargebacks rising and credit card holders trust declining, high-risk merchants need to implement both internal as well as external tools and strategies designed to combat and eliminate the potential risks. By offering multi-layer protection and management solutions, such tool enables you to:
- Identify stolen, invalid, or compromised credit and debit cards
- Increase profits per customers and per sale
- Manually investigate the customer’s address mismatches and shipment requests
- Process your e-payments more effectively and securely
- Eliminate unnecessary disputes before they are initiated
- Reject the transactions immediately that are found as a fraud
- Offer real-time analytics and expertise to control your chargebacks
- Retain your sales revenue and boost profits
Though chargebacks serve as consumer protection for online shoppers, they can be costly and detrimental for their e-commerce business. Adding a successful fraud and chargeback prevention tool may be just what you need to conquer chargebacks and secure your processing payments, including credit, digital, digital, or mobile transactions.