First, some context:
- 30% - the number of chargebacks that result from transactions made with a stolen card.
- 26% - the number of chargebacks that result from undelivered orders.
- 15% - the number of chargebacks initiated by cardholders due to retailers shipping the wrong product.
- 8% - the number of chargebacks that result from orders significantly not as described.
In a series of previous articles, we expanded on why and how you should fight chargebacks effectively, as 86% of all chargebacks are probable cases of friendly fraud. However, since a sizeable amount of chargeback reason codes result from merchant errors, we want to flip the coin for this installment.
We’ve researched and whittled down nine rookie merchant mistakes that could lead to higher chargeback rates. Understand these mistakes and use the actionable hacks to circumvent all chargebacks specially payment card chargebacks.
#1: No/Poorly-written Return Policy
You must ensure that your refund and return policy isn't letting you down. A good return policy should incorporate the prospective customer’s needs and the business plan needs and ultimately help reduce fraudulent chargebacks.
Research shows that most consumers (81% to be precise) who file chargebacks do that because it's the most convenient cause of action. They prefer to talk to their bank than you -- making it crucial that you must take every step to help them reverse that order. The easier your order return procedure is, the higher your customers’ chances will contact you instead of bypassing you entirely.
Take a look at the entire customer journey. In simple terms, define what constitutes Sales Final, and remove any barrier in the return process. Make it easy for people to cancel their orders if they which to do so. Above all, put your policies where customers can find them and educate your staff on the framework.
#2: Pricing Methodologies that Confuse Customers
Clients must know precisely how much they will be charged at the time of purchase. So ensure all additional charges, such as exchange rate differences, taxes, shipping fees, and so on, are disclosed.
If it is a promo sale where a discount is available, consider implementing it before payment, with the totals displayed next to the full price.
Also, ensure your billing descriptors match your business name so that it won’t confuse customers. If the cardholder does not recognize your business name, they will most likely file a chargeback.
Here's a pro tip: Consider placing your contact information, such as an email address or phone number, on the descriptor. That'll encourage the cardholder to contact you before talking to their bank.
#3: Not Prioritizing Customer Service
There are no two ways about it: understanding of Customer service is key to business sustainability.
If you don’t prioritize your relationship with your customers, even loyal customers might seek remediation for transaction issues with chargebacks. Hence, enhancing your customer experience is a fantastic place to start when it comes to illegitimate chargeback prevention.
That involves being available to your clients when they need you (chatbots help make 24/7 service viable). Also, you’ve got to keep an eye out for email queries/inquiries and respond as soon as possible. Further, it’s helpful to include your contact information on all relevant pages and make it easy to discover for your consumers.
Here’s one more thing: Building a brand identity as a responsive, reliable, and helpful company often trickles down to how you mitigate customer disputes. And many times, that happens on Social Media. Don’t neglect that real estate.
#4: Ignoring Your Shipping Policy
Your order fulfillment and shipping rules, like your contact information, should always be accessible to the customer. Ideally, you should state your order processing timelines and provide several delivery choices, along with price and cut-off periods for each. But not just that, you should also ensure that you follow through on those timelines and promises.
If the shipment timeline is considerably longer than usual due to unforeseen challenges, let your customer know. That also applies to shipment delays due to peak seasons or location. The more information you provide, the lesser the chances of a chargeback due to ambiguity on the order status. At least for legitimate customers.
#5: Not Using Fraud Prevention Mechanisms
An unsecured website is a Valhalla for payment fraudsters. As exciting as it is to quickly set up shop and start collecting payments, processing orders made with stolen credit cards is a nightmare you don’t want to experience. And just so you know, industry analysis puts the cost of CNP fraud to retailers between 2018 and 2021 at $130 billion. And an Aite Group report projects a 16.4% increase in U.S. CNP fraud market this year.
Update your site regularly and encrypt the data on your site. Make use of verification tools such as the Client Billing Address (AVS), which automatically verifies the billing addresses of the client with the address in the bank record. Card safety codes assist in verifying that a payment card is physically available to the consumer. Consider using 3-D Secure technology and automatic response systems (Mastercard SecureCode, Visa Verified, etc.) to bring an extra layer of fraud protection strategy such as 2-factor authentication.
There are a few more tools we can recommend. For example, geolocation helps you spot the customer based on the IP address; Blacklisting enables you to track and record the users that show awkward tendencies; Fraud scoring is based on multiple fraud indicators used to generate a score that shows the amount of risk for each fraudulent transaction.
#6: Not Working With Professional Chargeback Mitigators
Chargeback mitigation is an uphill battle with minimal success prospects for merchant revenue. And that shouldn’t be a surprise because of the rules and disjointed processes involved.
The fact that fraudulent customers know that and continue to milk the loopholes makes it even worse. Look at the numbers: 40% of consumers who file a chargeback representment will do it again within 60 days. According to RFI Group, friendly fraud data signal generally goes up at a rate of around 41% every couple of years, meaning that friendly fraud typically goes up at a rate of approximately 41% every couple of years. A recent study shows that almost two-thirds of 47 countries surveyed, 65.95% of the total, experienced an increase in their chargeback-to-transaction ratio.
If your strategy is to fight chargebacks with manual labor and the best of knowledge from your staff, you are making a huge mistake. For one, it’s an expensive approach. And two, you almost always won’t come out on top. Why? Well, for starters, you won’t have the extensive transaction data front at least 50 data points and insights that a chargeback automation tool like Chargeflow can give you. And the back-and-forth processes of evidence gathering and paperwork filing take an ungodly amount of hours.
#7: Poor Product Description
How you describe your products is crucial.This article highlighted that customers generally file Product Significantly Not As Described chargebacks when the merchandise they received is either used, impaired, counterfeit, not functional, missing a significant part, or not the exact specification you listed. Hence, you must provide an accurate representation of the order on your website.
The rule is simple:
- Know your typical audience.
- Tell the whole story about the product.
- Provide multi-dimensional pictures.
Don’t hide any defects and take some time to read your product description from the customer’s point of view.
#8: Shipping Orders Without Tracking
A trackability function helps to prevent uncertainties on the whereabouts of the merchandise. For example, when a customer purchases your store, the next thing they think about is when they will receive their order.
Not knowing when to receive their order makes the complete customer lifecycle a wasteful effort that will eventually cost business units. That increases the chances of them filling a chargeback and you losing chargeback fees. So help them get that valuable data. Track your orders and give the cardholder the code for them to monitor the movement of their package as they wish.
#9: Clerical Mistakes
Preventing merchant administration errors will help to limit chargebacks. That is particularly true at peak hours/season when it's all too simple to mix up numbers or issue a bill twice.
Some common clerical errors that result in chargeback include, but not limited to:
- The seller keyed in the amount incorrectly or misread the handwritten amount.
- The seller transposed numbers at some point in the transaction process.
- The seller made an addition or transposition error when calculating the total transaction amount.
- The seller altered the transaction amount after the transaction was complete.
We share extensive insights on how to limit clerical errors in this piece. Some of those hacks include double-checking numbers and totals before requesting authorization for a transaction. Bring your outgoing transaction management staff up to speed with order fulfillment best practices to avoid unnecessary human errors.
Knowing about these rookie merchant errors and putting in the work to limit them is the first step in preventing chargebacks using chargeback prevention alerts. But that does not guarantee an absence of chargebacks, as we already intimated earlier. The uptick in e-commerce business growth comes with an equal rise in effective chargebacks management. And research shows that customers that successfully file and won a chargeback dispute are nine times more likely to initiate another one.
That’s why companies like Chargeflow give high-risk merchants tools that help them alleviate the nightmare. Chargeflow chargeback technologies enables e-commerce entrepreneurs to develop their brands, support their consumers, and produce better products without having chargebacks stunt their progress.
How do chargebacks occur in e-commerce transactions?
Chargebacks can occur when a customer disputes a transaction made with their credit card and asks their issuing bank to reverse the charges. This can happen for a variety of reasons, such as if the customer did not receive the goods or services they paid for, if the customer was overcharged, or if the customer's credit card was fraudulently used.
What role does the customer's card issuer play in the chargeback process?
The customer's card issuer plays a significant role in the chargeback process as they are the ones who receive the dispute from the customer and investigate the claim. If the card issuer determines that the dispute is valid, they will initiate the chargeback process and debit the merchant's account for the amount of the transaction.
Can I contest a chargeback and how do I do so?
Yes, as a merchant you have the right to contest a chargeback if you believe it is invalid. To do so, you will need to provide evidence to the card issuer supporting your position, such as proof of delivery or evidence of the customer's acceptance of the goods or services. The process for contesting a chargeback can vary depending on the card issuer, so it's important to review the specific guidelines and procedures provided by your acquirer.
How can I minimize the impact of chargebacks on my business's revenue and reputation?
To minimize the impact of chargebacks on your business, it's important to take proactive steps to prevent them from occurring in the first place. This can include improving your fraud detection and prevention methods, providing clear and detailed receipts and invoices, and ensuring that you are promptly addressing customer complaints or issues.