Chargebacks are a pain for merchants since they deprive them of deserved revenue, damage customer relationships, and affect payment processing. While you can fight chargebacks and win, prevention is a better cure.
Let’s take a deep dive into merchant chargeback prevention using tools and strategies that’ll help reduce your chargeback rate.
Merchants shy away from discussing chargebacks. Mainly because dispute processes can be complex, and disputes make up a small percentage of overall sales, making them easy to write off as the cost of doing business.
However, this is a gross underestimation of chargebacks’ effect on the bottom line. Aside from the cost of lost merchandise and lost revenue, the true cost of chargebacks includes:
Card networks allow cardholders to file disputes for various reasons identified by chargeback reason codes that don’t paint the full picture. Generally, chargebacks can be traced to three main causes:
Excellent customer service is a good defense against friendly fraud. To avoid chargebacks, customer service representatives should be available and responsive before, during, and after purchase.
Make it easier for cardholders to deal with your customer service than the issuing bank. Display contact information prominently on your website, packaging, receipts and order blanks.
Regardless of the complications during order fulfillment, merchants should update customers. Without communication, shoppers get angry, assume the worst, and contact their banks.
The more you update your customer from checkout to delivery, the more their confidence in your business grows. You can include the tentative shipping and delivery date and provide email tracking numbers for the orders.
The number of chargebacks caused by procedural and minor errors is shocking. The errors include failure to get authorization and submitting incorrect data, and they can be prevented by evaluating the buying process and fixing chargeback triggers.
Product and service descriptions should be accurate to avoid chargebacks from “items not as described.” Be detailed in your descriptions and avoid vague phrases that misrepresent the item. Including focused pictures from different angles and specifying the color, brand, and size helps avoid surprises after delivery.
A subscription business is beneficial to customers and merchants but comes with some chargeback risks. Once a customer shifts from a one-time purchase to a subscriber, their expectations change. Ready yourself to initiate communications and be fast to respond to inquiries.
Subscription business models also require operational transparency. Your terms of service should be easy to understand and readily available even before the initial order.
Aside from this, subscription cancellations should be pain-free and simple. If subscribers feel you trapped them in a service they don’t need, they’ll file a dispute.
With a myriad of chargeback triggers, no single chargeback prevention tool is sufficient. Combining many tools in your merchant chargeback prevention strategy creates layers of protection for your business. These prevention tools are classified into:
AVS is a tool designed to compare the cardholder’s billing address available on file and what’s provided on the transaction. An address mismatch could mean it’s an unauthorized purchase.
Every payment card has a card security code. Since merchants or processors don’t store them, the cardholder should re-enter the digits on every checkout, which is relayed to the card issuer for verification. A mismatch in the security code might mean the shopper doesn’t physically possess the card.
During transactions, merchants send details like device name and IP address to the issuing banks for verification. Through 3D Secure, the issuing bank compares the details with what they have on file in real-time. Based on the verification results, the transaction is labeled low-risk, and the merchant can proceed or high-risk, which requires extra verification steps like providing the one-time password.
A blacklist is a database of past shoppers who’ve filed a dispute or charged back. The database is created post-transaction but ensures the shopper causes trouble only once.
You can integrate the blacklist with your CRM to flag orders by shoppers on the list and either cancel the order automatically or manually review it.
VAU is a payment card information clearinghouse that helps merchants prevent chargebacks linked to incorrect card data.
Velocity limits determine suspicious activities, like card testing, based on the speed of multiple transactions within a specific time.
These tools protect merchants against disputes and help keep chargebacks under control.
These systems notify merchants of a dispute allowing them ample time to refund a cardholder before it escalates to a chargeback. The main chargeback alert systems include:
Network enquiry tools also work by intercepting disputes filed. They allow issuing banks to get extra information on transactions before charging back a merchant. These systems help merchants resolve friendly fraud disputes before they are filed. They include:
Even with these tools, chargeback prevention is a complicated and time-consuming process. You need a professional chargeback prevention company to create an effective strategy for preventing and mitigating chargebacks. As an end-to-end chargeback management solution, Justt helps you do just that. From using chargeback intelligence to reduce the volume of chargebacks to winning back lost revenue from the chargebacks that do come through the system, Justt helps you tackle the problem in a holistic manner.
To learn more about Justt contact us.
The methods used depend on the type of chargebacks they receive. But generally, these methods work:
Chargeback protection is a service where liability for unauthorized transactions and fraudulent disputes are moved from the merchants to the chargeback protection provider. Many fraud prevention companies and payment processors provide chargeback protection.
Yes, merchants can fight chargebacks they feel are illegitimate to avoid losing sales revenue. However, it’s better to prevent chargebacks before they occur.
When a merchant fights a chargeback and wins, the disputed transaction amount is credited back into their account.
Unlike chargebacks, merchants initiate refunds. As a result, merchants cannot dispute or reverse refunds.
Chargeback prevention tools target specific threat sources like buyer remorse, policy missteps, and unauthorized card use. But since there are many potential chargeback triggers, prevention strategies revolve around several tools.
According to a report by JPMorgan, the average chargeback win rate for merchants is 27 percent. This calculation is based on all chargeback categories.
Ex-journalist and major fan of fintech and OSINT, I write regularly for leading industry outlets in finance and fraud prevention. Outlets I contribute to include Payments Dive, Finextra, and Merchant Fraud Journal, and I have been cited by PYMNTS.com
