When you own an online business featuring credit card payments, it should not come as a surprise if you have to deal with chargebacks. This happens when a cardholder asks for a refund when finding an unrecognized transaction. The customer can then file a chargeback, and the bank will open an investigation to address this matter.
In this section, you will find some tips on how to reduce chargebacks in different situations. We will focus on two main aspects throughout this topic: prevention and reversal.
How Reducing Chargebacks Works
Chargeback costs are going up, so how can you escape them? Prevention is the initial step so that these disputes don’t have such a significant impact on your revenue. Therefore, merchants should focus on managing their business practices and developing a prevention strategy to reduce chargebacks.
To know how to prevent and reduce chargebacks, you must first understand the reasons behind them. Generally, chargebacks can originate from criminal fraud, merchant error, or friendly fraud.
However, the majority are friendly frauds. In fact, according to PaymentsDive, ⅓ of consumers admitted to committing friendly fraud in 2020. And this number is expected to increase if sellers don’t take preventive actions.
It’s imperative to start preventing more chargebacks from happening. Therefore, your company must begin by evaluating its risks and implementing an anti-fraud strategy. With this approach, you lower the possibility of transaction issues.
Reducing the Risk of Chargebacks
Let’s start by outlining how a chargeback is filed:
- A client makes a complaint to its bank about an unknown transaction;
- The client’s bank contacts the merchant’s bank, and the money is credited to the cardholder;
- The merchant is contacted and can provide a representment package;
- The banks evaluate the evidence and decide whether to maintain or reverse the refund.
So, how can you reduce the risk of chargebacks? First, pay attention to your chargeback ratio, as it is your primary indicator regarding these disputes. In fact, you should try to be under a 0.9% ratio so that you are not identified as a high-risk seller.
Then, it would be best if you evaluated which improvements can be made to lower your chargeback risk. Removing merchant errors is a priority, namely if they are frequent. Sellers should work on best practices and solve internal issues to avoid this kind of chargeback. In addition, merchants also need to invest in efficient fraud prevention tools to minimize e-commerce security threats.
What is the First Step to Reduce Chargebacks?
On average, a seller has to deal with more than 200 occasions of fraud related to chargebacks and can lose more than $30,000 every month due to disputes. However, they can reduce chargebacks and their possible financial impact.
One of the first steps is understanding your level of vulnerability and looking at how much chargebacks are costing your company. When you are looking to reduce chargebacks, you should pay attention to the many variables that affect your cost of chargeback:
- The fees for the chargeback process
- The processing cost (including time and resources)
- The lack of profits from the sold product/service
Ultimately, you can lose your merchant account, which is not good for your business, to put it mildly. Therefore, detecting fraud and preventing more chargebacks is vital. Your organization should invest in fraud protection, with platforms like Chargebackhit that can help access transaction data.
When receiving chargeback notifications, sellers first need to look at the reason code shared by the issuing bank and identify the chargeback trigger. They can either do it by themselves or with the help of an Intelligent Source Detection. But what information does the reason codes give sellers? Well, it will essentially let them know the chargeback cause.
There are three main chargeback causes. When unauthorized transactions occur, we are usually facing criminal fraud. On the other hand, most of the time, any business or processing problem is a merchant error. When there is no valid reason for a chargeback, we can expect to be a victim of friendly fraud, which can either be a misunderstanding or an attempt of cyber shoplifting.
For example, the Visa reason code 12.5 — Incorrect Amount is related to the difference between the authorized and transaction amounts. As 13.3 — Not as Described or Defective Merchandise/Services is about the product or service being different from what was described on the company’s website.
Fighting chargebacks is also crucial through Representment. Prevention tools will be a great help for you to gather all the evidence needed to present a complete Representment package. Also, stopping disputes before they become chargebacks is very effective. That is why resolve tools are here to make it easier for merchants to refund clients during the so-called pre-disputes, which means before a chargeback is filled.
Proven Ways to Reduce Chargebacks
There are many ways to reduce chargebacks, starting with eliminating criminal fraud. Fraud detection tools play a big part here. It is recommended to have tools such as:
- 3-D Secure Technology
- Fraud protection filters – Address Verification Service (AVS) and Card Verification Code (CVC/CVV2)
- Fraud Blacklists
- Device Fingerprinting
- Velocity Limit
According to LexisNexis, Geolocation is the most used prevention tool in the United States, covering 57% of retailers. Next on the list is OTP/2-Factor with 53%, closely followed by real-time fraud detection and authentication with a payment instrument.
There are some other actions that you can take to reduce chargebacks. However, it is fair to say they are not going to disappear. Here are some ways to lower the number of chargebacks on your company:
- Work on a secure website. Make it safe for your clients to buy from you. Don’t forget about updating your website regularly and avoiding technical errors.
- Make good customer service available. Be sure that your company gives the proper support at every step of the buying process and gives them easy access to all your contacts and support hours. You want clients to come to you first, not to the bank.
- Provide accurate product descriptions. You should add a detailed description to your product so that the buyer knows what to expect from it.
- Choose a recognizable business name. Clients may not recognize your company’s name when looking at their bank statements. Therefore, it can cause them to file for a chargeback based on a misunderstanding.
- Have transparent shipping details. Inform your client of the shipping costs and the deadlines for arrivals. Having fast shipping is also beneficial. Moreover, let the customer know when any delay is noted. Other than that, use shipment tracking numbers to be aware of every delivery step.
- Work on your Terms of Service agreement. All the information about returning an article and how to get a refund must be explicit. Remember that managing a return is less expensive than handling a chargeback.
- Don’t make false promises. Privilege transparency, as this will save you from a lot of trouble. A free trial, for instance, should be free and not just a way to attract customers. Moreover, don’t just ask them to choose a paying plan before the end of the trial period, or you’ll put your company at risk of chargeback if they forget to cancel the plan.
- Install a good fraud detection tool. Anti-fraud tools with machine learning technology can be crucial in preventing more chargebacks against your company.
How to Reduce Credit Card Chargebacks
In 2020, LexisNexis stated that, on average, for $1 lost to fraud, merchants have an additional cost of $2.36. This can have a significant negative impact on revenue. That is why it is essential to control credit card payments to reduce chargebacks.
In fact, online purchases usually have card-not-present payments. This can open the door to fraud, as cybercriminals only need the card details. On top of that, it is harder to identify who’s making the purchase.
Therefore, verifying the purchaser’s identity using fraud protection filters is one way to reduce credit card chargebacks. For example, you can request the cardholder’s billing address with an Address Verification Service (AVS) and confirm if it matches the address in the bank documents. Another option is to ask for the card security codes (CVV/CVC) and the bank identification number. This way, sellers can reduce the odds of a fraudulent transaction.
How to Reduce Chargebacks in Hotels
Online booking is more convenient for most people nowadays, so hotels are increasing their digital presence. Therefore, they can face a considerable number of chargebacks. Below, you can find some reasons for this to occur:
Refused or Delayed Refund. Buyers might directly ask your company for a refund. However, the bank will quickly validate a chargeback when you don’t give them a quick answer or take more time than stated on your Terms of Services to refund them.
Services cancellation. When a service is canceled, sellers most likely have to refund the client. Especially if they want to reduce chargebacks in hotels. Otherwise, this might be a good reason for a bank to issue a chargeback.
No high quality ensured. Every step of your buyer’s journey counts. Ensure that the service delivered corresponds to the service offered on the website, so clients don’t have to ask for a refund. And if they ask for it, try to solve it as soon as possible by providing a replacement or making the return process easy.
Overall, you not only want to reduce the risk of chargebacks by preventing them, but you also want to avoid a bad review. This can happen when clients feel that a company isn’t corresponding to their expectations and don’t give them the proper support.
Can I Refuse a Chargeback?
You can try to overturn it, but you cannot refuse it. By presenting a representment package with the evidence, you can attempt to reverse the situation. Some evidence examples that can be used are:
- The transaction record with the AVS and CVV information to verify if the card was used without authorization
- A copy of the terms and conditions of the sale
- A copy of the invoices
- Confirmation of delivery
- Client’s order history
Still, the specific documentation can vary if you are a physical goods, digital goods, or services merchant. In any case, it is important to share as detailed information as possible.
Can a Chargeback be Reversed?
When dealing with friendly fraud, yes. In this situation, Chargebackhit’s Recover tool will be crucial during your representment process. It will enable the merchant to submit evidence about the transaction and prove that it is legitimate. With the evidence in hand, the issuing bank will decide whether to reverse the chargeback or not.
It’s important to remember that the cardholder’s bank is the one making the final decision. So, be aware that if the evidence doesn’t prove a valid transaction was made, chances are that your company will lose the money from the item.
Reduce Chargebacks with Chargebackhit
Now that you know how to reduce a chargeback, it’s time to act on it. With the right tools like Chargebackhit alerts & notifications, you can efficiently avoid chargebacks. Either when you’re still in the pre-dispute phase or through representment.
Your company needs to be vigilant and work quickly to reduce chargebacks. This is why Chargebackhit offers a Prevention solution that provides details about the purchase, which can be shared with banks and cardholders to stop a chargeback. On the other hand, our Resolve solution will provide you with automatic resolutions to valid disputes before they become chargebacks. And in the case of friendly fraud, we can help you build a good representment package with our Recover solution.
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