Insights on chargeback best practices seem to be all over the internet these days.
The reason is not far-fetched. The astronomical rate of payment disputes in recent times is cause for concern.
And if you’ve been following the volumes of research publications, news reports, blogs, and Social Media discourse on that subject, you might wonder what hasn’t been discussed already that made us want to add yet another piece.
Well, before we go into that, it’s crucial to highlight some essential backdrops from available literature on best practices for preventing chargebacks:
- Research shows that automated chargeback management systems continue to achieve better ROI, with merchants seeing their chargeback-to-transaction ratio decreasing by 21.6% between 2020 and 2021.
- Merchants still prioritize chargeback prevention. One study found that 40% of their survey participants used at least one chargeback prevention solution in 2021, and 63.9% used multiple solutions to stop chargebacks.
- Merchants who fight chargebacks received an average of 914% (a 121% increase since 2020) ROI, with revenue recovery reaching millions of dollars and labor savings in thousands of hours.
That said, our goal for this article is to give you simple tips on how to avoid chargebacks, recover lost revenue, and charge up the growth of your business as peak seasons approach.
Chargeback Best Practices: Simple Tips To Avoid Chargebacks During Black Friday and Cyber Monday
Cardholders reverse millions of dollars worth of transactions with friendly fraud every year.
A survey by NRF indicates the losses from friendly fraud total over $25 billion annually. A similar analysis reveals that there's been a 28% increase in friendly fraud over the last three years.
As bad as the situation is, it’s not an entirely hopeless matter.
There are proven chargeback best practices that, if carefully applied, will minimize your chargeback exposure, especially during the forthcoming Black Friday and Cyber Monday peak seasons. And save your business time and money.
Let's review those chargeback best practices accordingly:
#1. Ensure Your Policies Are Not Letting You Down
Narvar Consumer estimates that up to 41% of shoppers buy with the intent of returning. And a study by NRF and Appriss Retail highlighted that nearly 6% of those returns in 2021—some $25.3 billion—were fraudulent. That is to say, for every $100 of accepted returns, merchants lose $5.90 to return fraud.
As 49% of consumers actively check a store’s return policy before buying, you must create a transparent policy for order cancellation and returns. Some points to consider:
- What do you expect from customers, and what should they expect from you?
- What metrics do you use for acceptable return shipping?
- What constitutes a sales final, and how long do customers have to initiate a return?
Be aware. If your customers cannot find your return policy, it’ll not mean much, no matter how flexible it might be. Hence, your homepage footer, your checkout process landing page, and inside the purchase confirmation email you send to customers are good spots to put your policy. You can also add a hard copy of your return policy to every package you ship.
Think of your policy as an extension of your brand. Make it speak to the spirit of your business.
#2. Your Payment Processor Plays A Role In Limiting Your Chargeback Exposure
Another tip in our chargeback best practices is to work with a payment processor that understands your business model.
But let’s start by explaining the various payment terms you should know.
- Payment Gateway. A payment gateway is a framework merchants use to accept debit or credit card purchases. The term comprises the physical card-reading devices found in brick-and-mortar retail stores and the payment processing portals available in eCommerce stores.
- Payment Service Providers (PSPs). PSPs are third-party companies that help businesses accept diverse online payment methods, such as online banking, credit cards, debit cards, e-wallets, cash cards, etc. PSPs ensure safe and secure customer transactions.
- Payment Method. A payment method is a preferred channel for payment that requires payment processing, such as card payment, electronic bank transfer, and mobile payment.
- Payment Instrument. A payment instrument is a definite payment method used in a specific transaction flow. For instance, if you chose the credit card Payment Method at the checkout point of a digital marketplace, you could pay with a credit card as the Payment Instrument. A payment instrument is exclusive of letters of credit, credit card vouchers, or redeemable instruments by the issuer in goods or services.
Now that we’ve cleared the air on those crucial terms, it’s equally essential to mention that your payment service provider plays a critical role in helping you minimize chargebacks.
Before you onboard any service provider, ask yourself:
- Do they understand your business model?
- Do they have quick onboarding and multiple integration options?
- Will you get fast, more straightforward, and more secure payment services on any device?
- Will you get historical transaction records and data processing functionalities?
These questions are vital, not only as pertaining chargeback best practices, but also for ease of customer use. Carefully scrutinize fraud protection tools they offer and read their documentation and user reviews.
You don’t want to incur excessive chargeback fines due to your peculiar business model or industry because the PSP does not have sufficient provisions for curtailing payment risks.
#3. Pay Attention to What Your Customers are Telling You
Optimizing your customer service helps ensure you can deal with customer problems directly and not through their banks.
Most chargebacks are false claims. And there is abundant evidence to prove that.
Yet, you can’t ignore customer feedback.
Providing excellent customer service helps you understand the reasons for chargebacks. Internal issues you could quickly remedy could be contributing to your chargebacks woes.
For example, if a supplier has a quality assurance issue and you haven’t noticed that, customer feedback will help you correct that before it goes out of hand.
The pro tip is to contact the cardholder, hear their side of the story, and try to offer some compensation by either upselling, replacement, or discount on subsequent orders. Chargebacks cost your business up to 3X the transaction value. By educating your team on chargeback best practices and working with your customer, you might minimize your chargebacks.
If a customer already filed a case and you managed to persuade them to drop it, you should still respond to the chargeback and include such information in your letter. If you couldn’t reach an agreement, state your efforts at remediating the issue.
#4. Know Your Chargeback Threshold
A chargeback threshold is the chargeback limit established by card networks such as Visa and MasterCard that merchants cannot cross. Going beyond such a limit attracts severe consequences, such as fines and penalties. And in extreme cases, you also lose your processing license.
The consensus is that exceeding 1% chargeback-to-transaction ratio means crossing the established chargeback threshold. But that often depends on the card brand in question.
For example, in 2019, Visa kept its acceptable chargeback threshold at 0.9% of month-over-month transactions. However, their Early Warning threshold starts at 0.65% of month-over-month transactions and the Excessive Chargeback Rate at 1.8%.
Mastercard classifies vendors with over 100 chargebacks per month or a 1% chargeback ratio as Chargeback Monitored Merchants. And merchants with over 100 chargebacks per month or have a chargeback ratio of ~1.5% for two consecutive months are labeled as Excessive Chargeback Merchants.
#5. Have Tools to Track Down Suspicious Orders
Order anomalies and suspicious transactions are not quite hard to track down. But in peak seasons such as Black Friday and Cyber Monday, you can be easily distracted by high business demands. And you don’t get to scrutinize order anomalies adequately.
Below are some red flags you should keep an eye out for during transactions in these peak seasons:
The buyer is unwilling to provide personal details. Any time a cardholder isn’t forthcoming with simple information such as zip code, the spelling of their street name, or their surname, something isn’t right. The chances that such a customer is being careful are less compared to the possibility of potential fraud.
Their shipping address does not match their billing address. It might be that the buyer is sending a gift to a loved one or family member. But address mismatch is also a significant red flag you shouldn’t let slide since the cardholder could be using a stolen card to make an unauthorized transaction that’ll eventually cost you more money.
The customer is asking for overnight shipping. Be wary of orders that suggest the customer is in a hurry to complete the transaction. Again, the benefit of doubt is that they might have forgotten to buy their spouse that expensive gift. But in reality, it might be that a scammer wants to pressure you into completing the loop so they can disappear without being caught.
The order is unusual. If you don’t have any clients or do business in that region and someone suddenly sends an order request out of the blue, it could be that your customer acquisition efforts are finally paying off. Or you’re about to get played. Also, if someone is buying a little of everything, wants to buy everything in stock, or doesn’t care if the order is in stock, you should approach the transaction cautiously.
#6. Review Your Fraud Screening Parameters
Another crucial strategy that’ll help you fight chargebacks on Black Friday and Cyber Monday is to ensure your fraud screening instruments are up to par.
We’ve highlighted tools that can help you assess fraud risk and handle payment fraud when it occurs.
Card brands like Visa and MasterCard offer anti-fraud tools you can opt-in for, or you can onboard third-party tools. Some merchants find that having a third-party anti-fraud service and creating customized screening tools helps improve outcomes.
#7. Educate Your Customers
While you can quickly integrate new technologies to stay ahead of con artists and scammers looking to game the chargeback system, your customers might not be well-educated on the threats.
When someone takes advantage of their shortcomings to commit chargeback fraud, such inefficiency eventually becomes your problem.
Hence, another vital chargeback best practice is to educate your buyers on ways to stay safe online. Explain to them the negative impact of fraud. You can do that through a security awareness newsletter, a blog post, or persona-based short educational videos.
Also, you can equally send password change reminders and create an infographic to enlighten your buyers on chargeback fraud and other payment risks they should know.
#8. Use Delayed Billing
Merchants use delayed billing as part of their chargeback best practices as it shows all parties involved in a specific transaction their interest in validating the bill.
Delayed billing also helps merchants detect fraudulent charges before authorizing the payment, making it simpler to mediate the issue before it turns into a chargeback. Essentially, pre-authorizing the cardholder makes it possible for you to deduct charges only when the product is on its way to the buyer.
And if the product isn’t in stock at the time of purchase, you can let the customer know before billing their card – which is safer for everyone.
#9. Automate Your Chargebacks
Regarding chargeback automation as chargeback best practice for shared services, there are three options available for you:
a: Outsourcing your chargeback mitigation
Here, you outsource your chargeback mitigation to a specialist company, just like you can do with other aspects of your business. The vendor will keep track of your chargeback situation and fight chargebacks on your behalf.
The benefit is that your cases are in the hands of experts who understand the rudiments of the game better. They can win more disputes, and you save your workforce the time and effort you would’ve spent on the uphill battle.
The demerit of outsourced chargeback management is that you pay higher for that professional service. You cannot control the process. And there’s often a lack of accountability.
b: Onboarding a chargeback management software
This is where the real chargeback automation happens, which is what Chargeflow does. You subscribe to a software-as-a-service (SaaS) that recovers chargeback revenues on autopilot.
Using Chargeflow’s fully automated chargeback solution saves you unbelievable amounts of time and resources – especially in these uncertain times. And you have flexibility and control over the entire process.
Instead of onboarding multiple stacks to manage different assets, Chargeflow gives you a single program that uses high-end fraud protection to eliminate the impact of chargebacks on your store.
The demerit of chargeback automation is that if you choose the wrong solution, they will promise to automate everything, but they won't. You might spend significant time managing the software itself. That’s why we built a clean, hands-off solution that requires no effort from your side.
c: A hybrid chargeback solution
Hybrid chargeback solutions are neither fully managed nor SaaS.
The difference between this approach and a fully automated solution is quite significant. Whereas Chargeflow handles the entire process on autopilot, a hybrid solution doesn’t do that. You scan your chargeback systems for transactions and chargeback disputes while relying on a full-service vendor to handle the actual disputes.
The benefit is that you have some degree of control and flexibility. But using the hybrid option means onboarding more stacks with more challenges with partner programs. And as you might need to onboard more than one program, that equates to additional bills.
Be proactive to avoid chargebacks.
The sad reality of today’s eCommerce is that chargebacks are here to stay. Take a look at these numbers:
- Over 80% of consumers freely admit to filing a chargeback out of convenience.
- Cardholders that file chargeback are 9X more likely to repeat the act, and 40% of those will try it again within 60 days.
- The average cost-per-chargeback could hit $190, and friendly fraud will account for 6 in 10 chargebacks in North America by 2023.
The chargeback best practices we’ve shared with you in this piece will help you fight chargebacks effectively this Black Friday and Cyber Monday. And other peak seasons as well.
Be proactive in dealing with eCommerce chargebacks by implementing them right away:
- Disclose refund, refund, and cancellation policies at checkout
- Use multi-layered payment processes
- Train your staff on chargeback best practices
- Analyze your chargeback data
- Have tools to track down suspicious buyer behavior
- Review your fraud screening parameters
- Educate your customers
- Use delayed billing
- Automate your chargebacks
If these helped you, consider sharing the article to pass it on. To get free chargeback consultation, reach out to us.
What is the role of the acquiring bank in chargebacks?
The acquiring bank is responsible for processing transactions for merchants. They also play a critical role in the chargeback process as they manage and monitor chargebacks for the merchants and represent merchants in chargeback disputes.
How can merchants improve their chargeback to sales ratio?
Merchants can improve their chargeback to sales ratio by implementing best practices such as providing clear product descriptions, using secure payment methods, offering excellent customer service, and having a clear and concise returns policy. Chargeflow, a chargeback prevention company, can also help merchants identify and mitigate chargeback risk by analyzing transaction data and implementing prevention strategies.
What is the time frame for chargebacks and representments?
The time frame for chargebacks varies depending on the issuing bank and the reason for the chargeback. Typically, the process can take anywhere from a few weeks to a few months. Representments, on the other hand, can take up to 75 days from the date the chargeback was received.
What are the chargeback regulations and requirements for merchants?
The chargeback regulations and requirements for merchants vary depending on the country and the payment network. In general, merchants must comply with the rules set by the payment networks such as Visa, Mastercard, and American Express. They must also comply with local laws and regulations, including those related to consumer protection and dispute resolution.