Chargebacks on credit card purchases help protect consumers from misuse of their payment information. However, they can also be difficult for merchants to handle. For Visa and MasterCard, the majority of chargebacks happen for one of two reasons. The good news is that you can use a few techniques to achieve lower chargebacks as a merchant.
What’s the Problem With Chargebacks?
As a merchant, chargebacks come with two main risks. First, you may provide a good or service but have the customer chargeback the payment, meaning that you miss out on the revenue and incur the expense of the service or good.
However, the larger problem is that merchant services providers don’t like to see merchants with too many chargebacks. Your account may be terminated, or you may be forced to switch to a high-risk merchant account. In other words, a high ratio of chargebacks has a significant cost associated with it beyond the chargebacks themselves.
What Are the Main Reasons for Chargebacks?
Credit card issuers offer their customers the option to request chargebacks to protect them against dishonest merchants. Some of the reasons a legitimate chargeback may happen are that the merchant double charged, send damaged goods or sent nothing at all.
Additionally, some unscrupulous people may request chargebacks claiming to have never received the goods they ordered. However, they actually have received them and are making a fraudulent request.
Protecting against each of these issues can help you lower your chargeback ratio. Fortunately, each issue can be addressed with relatively simple techniques.
How Can You Protect Against Chargebacks?
It is impossible to completely avoid having customers request that a charge be canceled. However, you can protect your business against many of the main reasons. These are a few practices you can use:
- Always Send Goods: This likely seems obvious but it is important to make every effort to send goods in a timely manner. Try to optimize your fulfillment process to turn goods around promptly. If you have a high volume of orders, consider auditing your orders regularly to ensure they have been sent out.
- Communicate: Give your customers a realistic estimate for delivery. If you expect a delay for any reason, immediately communicate that to the customer. Most people do not want to request a chargeback. However, a customer may feel it is necessary if he or she has not received the order without any communication as to why.
- Double-Check Addresses: A common reason for packages not arriving is a mistake on the shipping label. Double-check that they match the order information. It is best to avoid any manual entry of addresses if possible. Many e-commerce tools can automatically generate labels from carriers for you.
- Offer Support Information: For the same reason that communicating issues is important, give your customers a way to contact you. If they have a problem and they can have it resolved or even heard, they are much less likely to ask for a chargeback.
- Employ Fraud Protection: Many e-commerce platforms have available fraud-protection tools. This can help make you a less vulnerable target to fraudsters. However, it is worth noting that criminal fraud only accounts for around 10% of all chargebacks. Miscommunication and error are far more common problems.
Using these techniques, you can significantly reduce your chargeback ratio. The most common cause is a misunderstanding between the customer and merchant leading to missed expectations. Therefore, simply making sure you provide plenty of information to customers can achieve a lot.
Is There a Way To Dispute Chargebacks?
If you are not able to completely eliminate your chargebacks, you can always dispute ones that you believe to be inaccurate, whether fraudulent or mistaken. After one is requested, you have five days to respond.
Most of the time, if you can show signed proof that the item was received, you can successfully dispute. However, it is important to note that many credit card issuers are more on the side of the customer than the merchant. Therefore, you should expect to need to provide written proof. Given the potential cost of having too many chargebacks, it is worth disputing them promptly.
Disputing chargebacks and trying to verify whether a customer received an item or not can be time-consuming. Consider whether it is more economically favorable to simply resend an order than to fight a claim of goods not being sent. Certainly, this is often a better option than accepting a chargeback.
How Likely Is a Termination?
Even if you achieve lower chargebacks, you likely won’t eliminate them. However, don’t worry about having a few. Most banks have some tolerance for them. Domestic acquiring banks will typically allow up to 1% of all transactions to be refunded this way. Offshore banks may be a little more tolerant.
Most of the time, you won’t be simply cut off without warning. However, it is best to try to avoid the issue as much as possible. The cost of losing your merchant account would be great.
