Monday, July 15, 2024
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How Online Business Can Minimize Chargebacks

Chargebacks are like cancer cells for any merchant, especially those in the eCommerce industry. In modern realities, the most common reason for chargebacks is fraud in transactions without presenting a card.

Luckily, there are several ways to prevent this if you have a powerful strategy. In fact, the average seller can cut chargebacks by almost half with a few simple policy changes.

What are they? Let’s figure it out.

Step #1. Assess the situation clearly

To reduce chargebacks, you must first understand how vulnerable you are to them and what losses you may face. Here are some simple statistics to help you:

In 2021, the average merchant received 206 monthly chargebacks due to fraud. Of these, it took about $146 to resolve one dispute. So with the help of simple calculations, we get about $30,000 of direct losses from chargebacks. And we don’t consider other possible waste and reputational costs associated with chargebacks.

At the same time, in a year, in 2023, the resolution of the dispute will cost $190, according to forecasts. Can you assess the damage?

Step #2. Determine the source of your chargebacks

Now you need to understand the main triggers of your chargebacks. As a rule, sellers identify three main sources of chargebacks:

  • Criminal fraud. This happens when attackers gain access to cardholder data and make illegal transactions.
  • Seller error. This applies to all faults, no matter how little, including flawed business procedures, unproven policies, and processing problems.
  • Friendly fraud. This is a chargeback filed by a cardholder without a strong reason that often happens when they find loopholes in the chargeback process.

Finding sources of disputes is absolutely essential to reduce chargebacks. Nevertheless, doing it yourself is not easy because you may not have access to comprehensive data. Therefore, we recommend using chargeback solutions for online business.

Step #3. Eliminate criminal fraud

Well, the process’s easiest step is to stop criminal fraud that can appear on your devices such as mobile phones and computers. To eliminate as many threats as possible, you must employ a multi-layered strategy using complementing fraud detection tools. Your policy should cover:

  • Geolocation
  • Device fingerprint
  • Speed ​​limits
  • Address Verification Service (AVS)
  • Fraud blacklists
  • CVV confirmation
  • 3D Secure technology

These technologies must, of course, be supported by a dynamic fraud score offered by an established vendor. Your decisions will be more accurate when you have more resources at your disposal.

Step #4. Fix seller error

There are many more pitfalls in the average transaction than you probably think. But there are best practices to help reduce chargebacks caused by seller error:

  1.  Display important contact information prominently on every page of your site.
  2. Replace IVR phone systems with 24/7 human support.
  3. Respond promptly to emails and check social media accounts multiple times a day.
  4. Keep your policies and terms of service simple and clear.
  5. Complete any cancellation requests quickly and confirm to the customer.
  6. Make sure customers know when products will ship and when to expect delivery.
  7. Use proof of delivery for large purchases.
  8. Write accurate and detailed product descriptions.

This is the bare minimum you should do.

Step #5. Fight back against friendly fraud

Avoiding chargebacks can be pretty challenging, especially if we talk about friendly fraud. But by recording each order and providing the necessary evidence to the issuing bank as proof, merchants can typically fight them off and prevail.

Sellers must ensure their merchant handle corresponds to the name of the customer-focused business to prevent chargebacks brought on by consumer misunderstanding. Ideally, you should also give a customer support phone number so confused clients can call you before calling their bank.

Obviously, customer satisfaction should be your top priority for friendly scams caused by bad customer experience. In no case should your customers feel cheated.

This works to your advantage by preventing chargebacks that will cost you significantly more than the transaction amount. It also helps build your reputation as a seller who cares about their customers and takes a humane approach.

Unfortunately, not every customer will give you the opportunity to remedy the situation by contacting customer support. When a transaction is made with all the correct information and authentication, the seller is under no obligation to accept a chargeback on behalf of the buyer.

Merchants must combat friendly fraudulent chargebacks by providing receipts, and other evidence that the transaction was authorized by the cardholder and the product or service was delivered.

Wrap up

Remember, there is no easy one-step solution to reduce chargebacks.

Chargeback management is a complex process that requires a coordinated, thoughtful strategy. Unfortunately, most merchants don’t have the time, resources, or expertise to stop chargebacks and protect their business. But there are a huge number of chargeback management solutions, software, and professional teams on the market that can help you with this.

Always keep possible losses in mind, and don’t postpone chargeback prevention for later.

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