When you get into business and you use a merchant account, you will quickly come across the concept of “chargebacks.” At first, they seem benign, but as you delve more into your enterprise, you discover that they are anything but. Eventually, they become the bane of your life.
But what are they? And how can your business reduce them? That’s the topic of this post.
What Are Chargebacks?
Chargebacks occur when a customer disputes a charge on their account. Here, they contact their bank or credit card issuer and raise a dispute.
The purpose of this mechanism is to provide restitution to customers if:
- They don’t receive the goods they ordered
- The transaction was fraudulent
- The services weren’t rendered as advertised
These are some of the reasons why customers like using credit and debit cards, and one of the main motivations for businesses to accept them–they drive trust. However, they come with all sorts of limitations. For instance, sometimes chargebacks are automatic, especially if you are in a high-risk business. Issuers may act on customers’ behalf, preventing sales from going through, even if the client has the goods. Chargebacks can also occur because of “unauthorised use”– i.e. someone using the card who shouldn’t.
How Can Businesses Reduce Chargebacks?
The good news is that there are several things businesses can do to reduce chargebacks. These strategies aren’t fool proof, but they are usually the best shot you have to reduce chargebacks for high risk businesses.
So, what can you do?
Set Clear Expectations
The first step is to set clear expectations around your services and what you offer. You don’t want to promise customers the world and then deliver far less than that. They won’t appreciate that at all and may decide to cancel transactions with their issuers afterwards, creating all sorts of headaches for you.
Therefore, state the services you provide and make refunds easy. Ensure you remove any confusion that might trigger a chargeback.
Prevent Fraud
Another tactic is to prevent fraud. You want to implement tools like CVV verification and address verification to make sure that the person you’re selling to is who they say they are. Sometimes criminals will steal and use credit card information and try to pass themselves off as having a new identity.
Improve Customer Service
You can also eliminate the vast majority of chargebacks by improving your customer service. The better you get at this, the less likely clients will go straight to their issuer.
Make it clear that customers can call you anytime and discuss their situation with your products and services. Put teams on standby to process refunds so that customers don’t feel like they need to go through the bank or issuer. Make sure that there’s always a process in place to deal with these complaints, even if you arrange courtesy calls after the fact.
Deliver On Your Promises
You also want to deliver on your promises. If you tell your customers that you’re going to do something, then do it, no matter how small it seems to you.
For example, if you’re going to provide text messages updating them, then do that. Likewise, if you’re going to include packaging materials in the price, don’t try to bolt them on afterwards. Customers will notice this and they won’t like it in most cases.
Fight Friendly Fraud
You should also put considerable effort into fighting so-called “friendly fraud.” This is where customers dispute legitimate payments to avoid paying.
You can do this by keeping detailed records of receipts and tracking numbers to prove they’ve paid. You can also do it with regular customer communications and maintaining a trail of information. Don’t allow wily clients to side step the payment issue by pretending that they never received the goods or services, even when they did. This is plain old theft and should be prosecuted if you feel you have sufficient evidence.
Monitor Chargeback Trends
You also want to monitor chargeback trends. These can help you identify potential problems, such as “item not as described.” Then you can check your processes against your advertising and seek any discrepancies.
Monitoring chargeback trends is something that you want to do to remain below the 1% of transactions most merchants allow. They understand that the majority of complaints come from unruly customers, but they also want to avoid working with companies that are deliberately ripping off their shoppers.
Ultimately, you want to focus on remaining accountable and delivering the services you claim you deliver. The more consistent you are, the better.
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