Enabling digital payments is indisputably one of the best ways to increase your sales and expand internationally without excessive investment. However, because online processing is associated with CNP (Card Not Present) transactions, there is a higher risk that cardholders file a complaint against the merchant in suspicion of fraudulent movements. For this reason, merchants need to work proactively towards taking the necessary measures to reduce chargebacks.
What is a chargeback?
A chargeback is a form of customer protection that allows cardholders to file a dispute against the merchant regarding fraudulent transactions on their statement. If the customer chooses to request a chargeback, the issuing bank is in charge of investigating the case and determining its legitimacy.
As a merchant, if a dispute has been filed against you, it will be in your hands to prove that the transaction was legitimate. If the issuing bank decides that it was a fraudulent transaction, the entire value of the purchase will be taken from your account, along with an additional fee that can reach up to $100 depending on the bank.
Chargebacks can have a damaging impact on your business. Some of the consequences include revenue and sale loss, unnecessary expenses, and even termination of your online account if too many complaints are filed against you.
Fortunately, even if it’s impossible to completely eliminate disputes initiated by customers, there are measures that every merchant can proactively take to reduce chargebacks and improve the overall performance of his business:
1. Make your contact information easily accessible
While some customers might issue a chargeback immediately after detecting an inconsistency in their credit card statement, it is not the usual case. Usually, they will try to work out potential issues with the merchant before filing a dispute. To avoid chargebacks issued out of frustration because your customers weren’t able to locate you, make sure that your contact information is available and easily accessible on your website. This will not only give you the opportunity to find a win-win solution with your clients, but will also show that you are a trustworthy merchant.
2. Offer refunds if the customer is not satisfied with your product
One of the best ways to reduce chargebacks is to have a clear refund policy and make it easy for customers to get their money back if they are not satisfied with the product. Some companies don’t offer refunds because they are scared about losing revenue, but this is a short-term solution – your long-term goal should be to keep your customers happy and avoid disputes at all costs. If a person is not satisfied with your products, he will find a way to get his money back, and requesting a chargeback might not be the best option as it hurts your business.
3. PCI Compliance is a must if you want to reduce chargebacks
Another efficient way to fight chargebacks is by becoming compliant with the official standard for credit card data protection PCI-DSS. If you process payment transactions on your website, you will need to take solid security measures to make sure that you are handling cardholder data correctly. Because chargebacks are usually associated with credit card fraud and unauthorised transactions, PCI provides anti-fraud measures for checking the validity of the card, and whether it has been associated with suspicious transactions in the past.
4. Send confirmation emails to your customers
As a merchant, you need to make sure that the customer always receives a confirmation email with invoice right after the purchase. It will reduce frustration and will give him enough time to react in case of a fraudulent action, contacting you to resolve the problem before issuing a chargeback. Once the product has been shipped, send another confirmation email providing the shipping details and the tracking information.
5. Provide a clear transaction description
A lot of customers issue a chargeback because they are unable to recognize the charge on their credit card statement. To resolve this issue, a recognizable descriptor that matches your website name and branding should be reflected on the bill. If your descriptor uses the legal name of your company instead of the name that appears on the website, customers can get confused and file a dispute because they do not recognize the charge.
6. Provide excellent customer service
Providing a great customer service and being an honest seller should always be your top priority. If you prove yourself as a transparent and trustworthy provider, your clients will be encouraged to work out the issue directly with you instead of requesting a chargeback. This is really important, because your issuing bank might close your merchant account if too many disputes are files against you. To avoid that, you need to keep your chargebacks to less than 1% of the total transactions.
7. Contact customers with suspicious orders
If you notice suspicious movements, such as bulk orders, multiple orders in a short period of time, or mismatch between the billing and delivery address, contact the customer to make sure that the order is legit. You can also verify his address by calling the Voice Authorization Center of the issuing bank.
Additionally, aside from verifying the security code and billing address, request the name of the issuing bank as a part of your purchasing policy – failure to do so is definitely a red flag.
8. Collect signatures upon delivery
To reduce chargebacks, always make sure that your carriers collect the signature of the receiver upon delivery. As a merchant, you need to keep a copy of the signed document.
9. Your subscriptions should be opt-in
If you provide subscription-based or recurring billing services, and you offer a free trial to your potential customers, always give the option to opt out of the paid service. Automatically upgrading them to the paid plan after the free trial not only provides a poor customer experience, but also encourages them to file disputes against you.
10. Using a payment gateway significantly reduces chargebacks
A PCI-compliant payment gateway, such as MYMOID, not only facilitates transactions by encrypting and securely transferring cardholder data, but also gives the merchant full control over their payment logic.
By having control over the entire purchase process, merchants can react immediately if something occurs, which results in reduced chargeback volume and operations risk.
At MYMOID, we know that chargebacks can be difficult to prevent and handle, that’s why we are here to help. If you have questions or want to learn more on how to avoid disputes, do not hesitate to contact us.