Concerned with chargebacks? It’s not just you.
According to projections, chargeback expenses may total $117.47 billion globally by 2023. The typical chargeback will cost retailers $3.60 for every $1 in direct transaction expenses when chargeback fees and other related revenue losses are taken into account.
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How Much Do Chargebacks Actually Cost You?
Chargebacks are a very severe matter. The good thing is that they are manageable.
It’s not always simple to limit consumer conflicts. However, if you have the correct merchant chargeback management plan in place, you can save a ton of time, money, and resources. Additionally, it might prolong the life of your company and enable you to forge stronger bonds with clients.
What Is Chargeback Management?
Chargebacks, often known as customer disputes, are forced transaction refunds started by the issuing bank. The phrase “chargeback management” refers to a variety of strategies for limiting the effects that chargebacks have on your company.
Chargeback management is the process you use to lessen the effect chargebacks have on your company. The strategies and methods you employ to handle chargebacks are all a part of a larger plan to avoid disputes, recover money, and gather and evaluate chargeback information to optimize your efforts.
In order to manage chargebacks effectively, it is necessary to focus on both dispute prevention and revenue recovery. The ultimate aims are to avoid chargebacks wherever feasible, challenge alleged friendly fraud through representation, and maintain a chargeback percentage for your company that is within reasonable bounds.
However, developing and putting in place an efficient chargeback system may be difficult. Chargeback procedures are intricate. There are several parties involved, as well as strict timelines and ever-changing restrictions. All of this must be accounted for by your system.
In principle, you could do all of this with an internal chargeback team. However, most people find that outsourcing the task to a reputable chargeback management business, like Accertify, is simpler and more cost-effective due to the volume of work and knowledge necessary.
Chargebacks: What Causes Them?
Chargebacks were first intended to provide a “safety net” for cardholders. It offered them the added assurance they needed to start utilizing credit cards widely at the time. However, the system was established 50 years ago, long before eCommerce was even a thought.
Over the past 50 years, customers’ shopping habits have evolved, but chargebacks have not.
A sharp increase in customers submitting chargebacks—many of them unjustified—has been the immediate outcome. The main goal of chargeback management is to counteract this hazard.
Chargeback Prevention Method by Source
Chargebacks may be submitted by cardholders for a number of “official” causes. Each chargeback has a reason code attached by the credit card networks, which is intended to describe the cardholder’s complaint.
However, these designations rarely provide a whole picture. In the end, all chargebacks originate from one of three basic places:
- Fraudsters using a stolen credit card or bank account
- Errors on the merchant side
- Friendly Fraud when cardholders file disputes that are invalid
Chargeback Avoidance and Prevention
Chargebacks can be a headache for any business, but there are ways to avoid them. By understanding what chargebacks are and how they happen, you can take steps to prevent them from occurring in the first place.
1. Follow the Payment Rule
The first step to avoiding chargebacks is to follow the payment rules set forth by your processor. This may seem like a no-brainer, but it’s important to make sure that you are adhering to all of the guidelines set forth by your processor.
If you are found to be in violation of any of these rules, you may be subject to a chargeback.
2. Get Authorizations
Whenever possible, you should obtain authorization from your customers before charging their credit cards. This can be done by requiring a signature for all transactions or by using an authorized payment gateway.
Obtaining authorization helps to prove that the customer actually authorized the charges and can help to avoid chargebacks.
3. Keep Accurate Records
Keeping accurate records means keeping track of all transactions, both online and offline. If a customer disputes a charge, you will need to be able to provide documentation proving that the transaction took place. This documentation can include receipts, invoices, or even bank statements.
4. Communicate with Your Customers
You need to communicate with your customers on a regular basis. This communication should include information about your products or services, your refund and return policy, and your contact information.
If a customer has a question or concern, they should be able to reach you easily. By keeping your customers informed, you can help to avoid misunderstandings that could lead to chargebacks.
5. Sell High-Quality Goods or Services
One of the best ways to avoid chargebacks is to sell high-quality goods or services. If your customers are happy with your product or service, they are less likely to file a chargeback.
Furthermore, if you do receive a chargeback, you can use the quality of your product or service as evidence in your favor.
6. Respond to Chargebacks Quickly
You need to respond quickly if you receive a chargeback. The sooner you respond, the better your chances of winning the chargeback. Be sure to gather all of the evidence you need to prove your case and submit it to your processor in a timely manner.
7. Analyze Your Chargeback Data
It’s not always clear why a client is disputing a purchase. You can discover the unspoken causes of disagreements and address disputes by analyzing your chargeback data.
For example, a customer calls to dispute a $100 charge for a product they never received. Upon investigation, you find that the product was delivered to their address but that they never signed for it. You also find that this customer has a history of disputing charges.
In this case, the data tells you that the customer is likely to dispute any charge they don’t believe they should have to pay – even if they receive the product or service. This customer may be trying to get something for free.
8. Respond to Invalid Disputes
If you receive a chargeback that you know is invalid, it’s important to respond quickly and aggressively. The sooner you respond, the better your chances of winning the chargeback. Be sure to gather all of the evidence you need to prove your case and submit it to your processor in a timely manner.
You should also consider taking action to recover your losses. If the chargeback is invalid, you may be able to recover the amount of the charge, plus any fees associated with the chargeback. You can also file a lawsuit against the customer if you have evidence that they knowingly filed a false dispute.
Final Thought
Chargebacks can be a hassle, but by taking the proper steps, you can avoid them. By following the payment rules, keeping accurate records, obtaining authorizations, communicating with your customers, and selling high-quality goods or services, you can help to prevent chargebacks from occurring.
Furthermore, if you do receive a chargeback, responding quickly and aggressively can help you win the dispute. Finally, data analysis can help you understand the root causes of chargebacks and take action to prevent them.
