Chargebacks are never a pleasant experience. However, it’s a common cost of doing business. One that is particularly true for businesses that have built a business model around the digital with limited physical retail stores., such as companies offering Software as a Service (SAAS) products. Whether the business is a small entity or a large enterprise, chargebacks are equally prevalent. Granted large companies have entire teams to manage chargebacks but smaller firms have options as well where they can ensure that chargebacks are prevented before they occur or can be easily disputed in the event they do.
There are many steps SAAS companies can take to mitigate chargeback risk, such as meticulous documentation of product of offering, security, and encryption, having top-notch customer support, and addressing issues around disputes and feedback as soon as they arise. Below we explore these options in detail to better understand the options available to avoid chargebacks for SAAS companies.
What are Chargebacks?
A chargeback is a dispute a customer raises regarding the validity of a particular charge to the customer’s credit card. If a chargeback arises, the issuing bank does not release funds to a merchant until the bank has decided on the veracity of the transaction. A lot depends on how the bank rules based on its due diligence. If the bank rules in favor of the merchant, funds are released to them. Otherwise, where the bank rules that the customer is correct, the charge on the customer’s credit card is reversed. The whole process of a chargeback arising, being disputed, and decided on is a lengthy one and burdensome requiring a significant amount of documented proof and recordkeeping.
How can chargebacks happen for SAAS companies?
For a Software as a Service company, chargebacks can happen in several ways. Maybe the software the clients thought they were purchasing didn’t pan to be everything they were promised. It’s important to evaluate the sales pipeline and closing process to gauge what kind of promises are made to customers that are too aggressive.
Another issue can be disenfranchisement with the software business are selling. Customer Support tickets may reveal that numerous customers may be complaining about the same issue repeatedly that isn’t being resolved. Since many SAAS are sold with recurring payments automatically charged to clients’ credit or debit cards, the customer may block the processing of such payment, a classic example of a chargeback.
Focus on the Customer
So what can businesses do to mitigate such risks? Start with a focus on the Customer. Customer service is vital for any business. It is the case even more so given the hyper-social world we inhabit today, forcing the bar higher to multichannel support via email, phone, chat, and social media. All this requires an upfront cost of time and money in training your support staff to appropriately understand the type of customers a business works with. The level of skill required from your support team is even more heightened with cases of chargebacks. Support teams have to balance a tightrope between exhibiting empathy while simultaneously inquiring to get screen out fraudulent activity.
Beyond a stellar support staff, management needs to constantly evaluate the types of customer inquiries coming in. It is important to understand the consumer journey and identify any friction that can lead to miscommunication or dissatisfaction with your software that manifests into chargebacks. Customers often make efforts to reach out to the support teams to rectify software issues. Consistently recurring inquiries can be a red flag for customer churn leading to canceled sales, increasing the likelihood of the major driver of a chargeback.
Proactively address disputes and feedback
Whatever systems your business has in place, Agile, SAFe, Scrum, etc., ensure that it adequately address client feedback and disputes. There has to be a process in place to utilize the various client feedback coming in and iterate the software to address that feedback.
Even if the client wants a refund, the client should feel at ease dealing with your business instead of reaching out to the bank. There should be a refund policy clearly outlined, as well as various means of contacting the SAAS company visible at the top of the website.
Finally, any pending dispute to not lose revenue should always be balanced against an unhappy customer willing to openly complain about his or her experience with the software company. This is itself a form of PR.
Implement Security Protocols
Companies need to understand how chargebacks can arise, specifically how they can arise for SAAS businesses. Once established, companies can implement the appropriate safeguards to avoid them to a great degree. Specific security and encryption technologies merchants can invest in to avoid the chances of fraudulent transactions include:
- Tokenization – a data storage mechanism used to secure customer credit card information that is used to process payments.
- BIN checkers – A tool used to match the bank details of a credit card against a database of authentic bank identification numbers to verify the card details used in transactions are genuine before the transaction is processed for payments
- 3-D Secure – this is a web-based authentication process for card not present (CNP) transactions.
Managing chargebacks risk is not easy and can be a costly process for all types of businesses. Companies end up paying for them in ways other than loss of sales or costs related to chargeback fees assessed by the merchant account provider. Payment Processors may also start seeing your business from the lens of a high-risk business, resulting in higher payment processing fees. Furthermore, the additional friction your business needs to introduce into the sales process to flag fraudulent activity can alienate many customers.
Since so much is out of the control of the merchants involved in chargeback disputes, it may feel there is not much they can do. However, there is a lot of hope in taking preventive action to avoid chargebacks. Merchants can reduce chargebacks arising by taking deliberate action on security, customer focus and always keeping lines of communication open to address any disputes as soon as they arise.