Increasing chargebacks have become a complex issues for companies. While you cannot 100% eliminate existing chargebacks, you can mitigate the risk of future chargebacks. Contrary to naïve misconception, chargebacks don’t always cause significant financial losses to businesses.
If you’re a business owner, you’ve probably wondered, at some point, “what to do if I’m getting too many chargebacks,” or “why I’m getting too many chargebacks?” Both are legitimate questions because too many chargebacks hamper the company’s reputation and put it in a bad position in front of credit card processors.
So, the next time you sell products or services via eCommerce, look out for potential chargebacks. While running a company can be highly profitable, business leaders need to take the necessary steps to ensure the organization has a minimum number of chargebacks.
Let’s look at the basics of chargebacks, why a high number of chargebacks render adverse effects, the leading causes of chargebacks, and the best ways to reduce chargebacks:
What Constitutes a Chargeback?
You can tell a lot from the “chargeback” title. Chargeback refers to when funds move from the customer to a business. You can look at the chargeback through the lens of a reversal. Mostly, buyers decide to take back their money because they’re not satisfied or happy with their purchase decision.
What Makes Chargebacks Bad for Businesses?
Despite the nature of a business, chargeback renders a negative impact. In layman’s terms, chargebacks leave a bad image for businesses and can continue to add up over time. You have to move past a basic refund to see the impact of the chargeback. It reverses profit for the company and can trigger cancelation from the merchant account.
Today, banks have specific chargeback limits. If merchants exceed these limits, they risk cancelation or penalties. Oftentimes, customers enact chargebacks when they don’t get their refund. On top of losing your merchant account, chargebacks damage your brand.
But unlike the general product returns, chargebacks impose fees on merchants by the card service provider. It serves as the payment to review the chargeback case and determine whether or not they can resolve it.
On average, it costs businesses $25 per chargeback incident. But even if the service provider manages to address the issue – businesses can save, on average, $10 on purchases. In some cases of dispute, businesses don’t get the money back even after a successful resolution.
Top Chargebacks Causes
Understanding the underlying reasons for chargebacks can help you maintain return customers and improve the quality of your customer service. In any case, there is more than one reason customers want a chargeback. The more you understand these reasons – the better ways you can come up with to avoid potential chargebacks.
- Technical Error
Humans often make technical errors, and these mistakes lead to the acceptance of payments. The best course of action for eCommerce businesses is to avoid the traditional manual processing of transactions to prevent potential chargeback claims.
Other technical errors stem from duplicate charges. Sometimes, the system charges a client’s card twice for a single transaction. The duplicate charge also comes into play when the consumer clicks on the “pay” twice, which initiates the chargeback.
- Friendly Fraud
Oftentimes, dishonest or non-transparent customers utilize chargebacks carelessly that trigger favorable fraud or chargeback fraud. Consequently, it causes companies continuous losses. The worst part is that the consumer gets to enjoy the product or service and then decides to file a fraudulent claim against the business. It is as if the consumer didn’t even receive the valued product or service. Chargebacks on transactions have become common among dishonest buyers. And the burden falls on the businesses to be extra cautious.
- Unauthorized Email or Phone Transaction
Clients often deny purchasing a product or availing a service through a phone call or email. In this case, the merchant has no choice but to take back the phone or email orders. It is the main reason merchants always ask for additional details and confirmation before processing email or phone orders. Often, phone and email transactions lead to chargeback disputes that work out in favor of customers and negatively impact businesses.
- Late Shipment
Chargebacks can come into play if there is delayed service delivery or late shipment of a product. In fact, when a merchant fails to ship a processed item or the delivery service is not fast enough, the customer can file a legit chargeback and dispute the transaction. It is the main reason merchants prioritize delivering products within a specific time frame, collect proper receipts, and track items throughout the shipment process.
Best Ways to Lower Your Chargebacks
The consequences of a high number of chargebacks for businesses are loss of profit, market credibility, online reputation, and termination of merchant accounts.
In fact, high-risk businesses have to be more cautious about their potential chargebacks. Businesses should use modern anti-fraud programs to collect and review evidence in case there’s a disputed claim.
Most merchants concur that addressing existing disputed chargebacks can be a complex process. So, focus on your efforts to prevent potential chargebacks for your business.
If you’re wondering how to handle too many chargebacks, adopt the following practices to mitigate chargebacks for your business:
- Adopt a Clear and Concise Return & Refund Policy
Besides, dealing with friendly fraud has become more complex than traditional credit card fraud. But one of the most effective ways to ensure low chargebacks and avoid future chargebacks is to have a clear-cut refund and return policy.
Encourage customers to take some time and check out your return and refund policy before buying a product or service. A comprehensive return policy should be able to communicate to all your customers. You can take this measure to avoid potential dispute claims and lower future chargebacks.
- Improve Security Parameters for In-person and Online Payments
Businesses cannot afford to overlook security in the digital and tech-driven age. So, upgrade the in-person and online payment security to avoid potential chargebacks. Ideally, you should reach out to a payment provider and IT expert to put in place robust security tools to avoid chargebacks for the foreseeable future.
You can take standard security steps like:
- Update your POS or point-of-sale software
- Require PIN number and customer signatures
- Prioritize highly secure and safe card transactions
- Ensure Product Descriptions are Not False
No one likes false advertising and, least of all, customers. So, ensure there is no false claim on your products or services to avoid potential chargebacks. Customers often believe that the item they received doesn’t match the posted online description, which leads to chargebacks. So, draft a suitable and realistic product description. You can add product images and videos to decrease chargebacks.
- Consistently Update Online Inventory
When a customer buys an out-of-stock product from an online merchant site, the customer is bound to trigger a chargeback. In these scenarios, many customers prefer a chargeback rather than a refund. So, be diligent and ensure your online inventory is consistently updated.
What Else?
- Manage delivery and communicate expectations
- Ensure high accessibility
- Offer free trials
- Normalcy of Chargebacks
What is the ideal number of chargebacks for businesses? Assume the lower – the better. In any case, avoid generalization since a lot depends on the type and size of each company’s operations. On the bright side, business chargebacks tend to decrease each year.
Back in 2020, companies lost over $17 billion in fraud and chargebacks. Practically, different card networks have different standards when it comes to the number of chargebacks for a specific business.
It is vital to understand that card networks take a preemptive and proactive position on chargebacks. Typically, card networks consider a 1% transaction-to-chargeback ratio as the high figure. So, if your company has chargebacks higher than the 1$ threshold, then you may incur potential penalties and bigger transaction fees.
What Should be Your Approach to Reduce Chargebacks?
There’s no rocket science around chargebacks – the trick is to take prompt action to avoid chargebacks and decrease potential costs. Remember, it is normal for businesses to not be able to get rid of all their chargebacks. The key is to successfully manage and mitigate a lower number of chargebacks.
Take standard security precautions and actively steer your company in the right direction. It is also crucial to improve communication parameters and make customer service highly accessible and seamless. It is the best way to avoid potential chargebacks. But when reducing existing chargebacks, you can gain control of the situation by disputing unwanted chargebacks related to fraud that affect your business processes.
Wrapping Up
In time, you should be able to get lower credit card processing rates on your merchant account. What’s the secret? Consistently review your chargebacks and rectify issues before they spiral out of control. Opt for a reputable merchant service provider to help you spot chargebacks quickly. In retrospect, if you’re dealing with a lot of chargebacks, understand that you have the power to reverse the situation.
