All merchants that accept credit cards recognize that the cost of doing business includes returns, a customer requesting a refund directly from the merchant. And of course chargebacks, where a customer makes a request for a refund through their issuing bank. Our guide outlines some pointers on preventing chargebacks and ways to detect friendly fraud.
A chargeback disputes allows:
- • The issuing bank to post a credit to the cardholder account while the dispute is investigated.
- • The issuing bank to debit the merchant’s bank
- • The merchant’s bank to debit the merchant’s bank account
Chargebacks are the result of the unauthorized use of a credit card (stolen cards), a product or service not being received, customer dissatisfaction with a product or service, or “friendly fraud”. Friendly fraud is the result of consumers filing illegitimate chargebacks based on false claims.
The chargeback system was put in place to protect consumers from fraudulent charges, and to provide a way for consumers who were unable to resolve legitimate disputes with merchants to receive a refund. Unfortunately, the system has been exploited by consumers (friendly fraud) and created a cottage industry that profits from chargeback fees. The end result is higher prices for merchants and consumers.
Tips to Preventing Chargebacks
First and foremost, always respond to the request for paperwork! Ignoring these requests is costly at every level, including potentially losing your merchant account.
- • Check credit card expiration dates.
- • Check signature for card present.
- • Disclose terms and conditions.
- • Make warranty and guarantee policies clear, as well as any shipping and processing fees or restocking fees.
- • Be aware that restocking fees cannot be applied to free trial offers.
- • Use fraud tools such as Tranzlytics to embed code on your website and payment pages to authenticate the identity of the cardholder.
- • Authorize every sale on the order date and use the Address Verification System (AVS) and collect Card Verification Codes (CVC).
- • Do not repeat authorization for payments that are “declined”.
- • Do not attempt to obtain authorization later or force the transaction through by splitting the payments into smaller amounts. These tactics can fully shift the liability to the merchant.
- • If authorization fails ask the customer for another payment type.
Email Confirmation and Delivery
- • In the always-on, always-connected world, customers expect immediate confirmations and emailed receipts when they place orders online.
- • Make sure the shipping timeframe and details are communicated and keep customers informed about order status if the shipment is delayed.
- • Email an Order Confirmation Notice to the cardholder prior to shipping and processing settlement.
Communicate with Customers
- • Be accessible by phone and email and make sure your customer service staff is knowledgeable, friendly, and responsive.
- • After hours make sure messages can be left and be prompt in responding back.
- • Provide your contact information on your website, receipts, emails, and don’t forget billing descriptors!
Implement a billing support hotline.
- • Providing customers with a dedicated, toll-free number and email address will alleviate their concerns and build good will.
- • Businesses that are highly accessible to customers have been shown to increase customer loyalty and decrease chargeback and refund ratios.
Make sure your billing descriptor is accurate.
- • Often times a customer will initiate a chargeback because the business name on the statement doesn’t match your DBA. Make sure they know how the charge will appear on their statement and include a phone number, ideally before the name of the business.
- • Make it easy for them to call and validate the charge. Consumers are now paying very close attention to their credit card statements.
Have a generous refund policy.
- • Studies have widely shown that the more generous and flexible an online company is with their shipping rates and return policy, the more likely they are to keep a customer loyal. This leads to a customer having more confidence and loyalty to your brand as a result.
- • The goal of reforming a return policy is to increase customer satisfaction while avoiding unnecessary chargebacks that are within a merchant’s control. The cost of refund expenses pales in comparison to chargeback fees and the risk of losing your merchant account.
Be accurate and clear about your product or service.
- • Depict your products images clearly and provide accurate descriptions of goods and services to avoid chargebacks.
Tips to Prevent “Friendly Fraud”?
First, there is nothing friendly about “friendly fraud.” These are illegitimate chargebacks and they are the leading cause of chargebacks. Justifications for filing an illegitimate chargeback include the following false claims:
- • Product or service did not perform as advertised.
- • Product did not appear as depicted.
- • A customer neglected to cancel a product or service on time.
- • A customer denies the charge.
- • A customer is exploiting the system for free goods or services.
- • The customer is aware of chargeback consequences and aims to damage a merchant account.
Friendly Fraud Facts:
- • Visa reports that merchants lose an accumulated total of $11.8 billion annually.
- • The FBI reports friendly fraud is within the top 3 threats to e-commerce.
- • Friendly fraud represents more than 80% of chargebacks.
- • 81% of recent survey participants admitted to filing an illegitimate chargeback because they “didn’t have time to contact the merchant.”
- • Only 14% of consumers follow credit card regulations and contact the merchant for a refund before initiating a chargeback.
- • A consumer who has filed a chargeback is nine times more likely to do it again.
- • 40% of cardholders who successfully file an illegitimate chargeback will attempt another in the next 90 days.
The path to preventing chargebacks starts by understanding that these statistics reflect customer’s proactively avoiding a merchant. Often times it’s beyond a merchant’s control, but to reduce the likelihood of these situations happening requires an evaluation of your company’s business practices, disclosures, return policy and customer service practices.
DigiPay Solutions understands how to prevent chargebacks at a deeper level than most processors and merchant service processors because we are the leading provider of high-risk merchant accounts. Merchant are typically classified high-risk because their chargebacks exceed the card association’s mandate of less than 1%.
Preventing chargebacks is easy with DigiPay, powered by Tranzlytics, a risk management platform that uses technology that is intelligent by design. We believe that technology and human intelligence is the best way to stop fraud in its tracks. With DigiPay merchants have risk managers who continually monitor transactional data and take corrective action to keep your merchant account healthy and processing at the lowest rates.
Want to learn more? Contact us………..