Chargebacks are used as a safety tool against fraud transactions, giving your customers a chance to file a dispute against you if they suspect any unfair or fraudulent transaction. These chargebacks are quite common in all industries, including SaaS companies. If your customers feel they are charged unfairly or are not satisfied with the amount a SaaS company has deducted from their accounts, they can request a chargeback.
A blog by Charge Flow suggests that SaaS companies experience a higher number of chargeback fraud cases than other service providers. Customers are 12 times more likely to file a dispute against the payment made through digital channels than in-store transactions. The worst part about chargeback is that the chances of the service provider winning the dispute are sadly very slim. In most cases, the customer who files for a chargeback wins and gets their money returned within a short period.
What Exactly are Chargebacks and How SaaS Companies Can Avoid them?
Chargebacks occur when a customer requests to reverse the transaction as they suspect any fraud or unfair payment. If the chargeback seems valid, the issuing bank accepts the reversal request and deposits the money back into the customer’s account.
Not all chargeback claims, however, are valid. Around 70% of the credit card frauds occur because of false customer claims, shows a report by FIS. Not only do the chargebacks cost money to the SaaS providers, but it affects their reputation in the software market. Here are a few things you can do to avoid chargebacks.
- Inform Your Users About Your Payment Policy
Your Terms of Service and Pricing Plans pages must have a detailed description of your payment policies. Mention everything about your payment structure and how you charge fees on a subscription-based model. You can use these sections as proof of your transparency.
Another way to avoid chargebacks is by notifying your customers before deducting money from their accounts. Some SaaS providers deduct fees directly from their users’ accounts without any warning. Even if your customers have set up automatic billing, consider emailing them about the subscription fees.
Now, a reminder might save you from a chargeback request, but it also means more people canceling the subscription. That’s because many people forget to cancel their subscriptions. A reminder of the due payment means giving them an opportunity to reconsider their subscription and decide whether or not they should continue the plan.
- Give Accurate Details of the Order
SaaS is not for tech-savvy people only, but it’s a little difficult to understand and operate. That’s why a SaaS provider must take the necessary steps to provide their customers with an accurate and precise description of the product. One of the common causes of a chargeback is misleading information. A precise product description shows your customers the specialty of your product, its features, what it does, and how it can help them.
Craft product demos, write detailed descriptions in a simple language and offer a free trial to give your users a better idea of how your product works and what they can expect. You must be wondering what role product description plays in lowering your chargeback ratio. For starters, a well-crafted and accurate product description means more satisfied customers. They will not file a dispute with your company if they are happy with your product.
An accurate product description, however, cannot prevent the scammers from requesting a chargeback. That being said, there is a good chance you will not get any chargeback with a detailed and well-written product description.
- Be Responsive
It isn’t only about a chargeback, but you don’t want to lose a customer who can be your loyal client. So, to keep your customers, you must provide them with regular support. Mention your contact details and make it easier for your customers to reach out to you with whatever queries and concerns. A responsive team means your customers can count on you for assistance as and when needed.
Being responsive means answering your customer’s questions, resolving their complaints, and issuing a refund if necessary. A refund policy is a must for all SaaS providers. Now, issuing a full refund will result in the loss of revenue for your business. So, the best you can do is try to strike a balance between satisfying your customers and keeping the revenues with a partial refund.
- Protection from Fraud Chargebacks
Chargebacks are not always genuine. It is, therefore, important to have a solid and robust security infrastructure in place to prevent any fraudulent chargeback requests. A few solutions that can help protect your company from any such fraudulent activities are Card Verification Value (CVV) Verification, Velocity Limits, and Fraud Scoring.
The development of a SaaS business is already quite challenging for a startup, so don’t make it more challenging. Have a secure infrastructure and safety protocols to ensure maximum protection for your SaaS business.
- Respond to the Chargebacks
Earlier, we mentioned that a vast majority of chargeback requests are resolved in customers’ favor. That, however, doesn’t mean a merchant shouldn’t respond to a chargeback. There’s a chance a customer has filed a fraudulent chargeback without any valid proof to show to the payment provider.
If that’s the case, there is a chance the SaaS merchant will win the dispute. Remember that the actual amount for which the chargeback is filed is often higher than the chargeback fees or cost of the transaction.
Keep all the documents ready and submit them when asked. However, the final decision is always in the bank’s hands. And, chances are it will be in the customer’s favor since the chargeback is requested for the digital product.
Chargebacks are also a common cause of high churn rates. Fortunately, if you keep your customers happy with low-cost and high-quality products, there is a low chance of chargebacks and a high customer satisfaction rate. Genuine customers do not file a dispute against you unless you mislead them or charge unfair fees.