An e-Commerce merchant knows that the cost of doing business includes the accumulation of return expenses. The dark side of these costs happen when an increase in chargeback fees and rates eventually become so high that it endangers a merchant’s account with their acquirer. Today’s lesson covers how to prevent chargebacks and friendly fraud.
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”.
What Is “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 return policy and customer service practices.
How Your Refund Policy Can Prevent Chargebacks
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.
One e-commerce retailer provided a testimony to their success from implementing a 365-day return policy and free, 2-way shipping. “Our best customers have the highest returns rates, but they are also the ones that spend the most money with us and are our most profitable customers,” said Zappos V.P. of Services & Operations Craig Adkins.
High-risk industry merchants can tailor their return policies to reflect a customer’s best interest in a strategy that aims to retain their business long term. The goal of reforming a return policy is to increase customer satisfaction while avoiding unnecessary chargebacks that are within a merchant’s control. While the merchant may experience the set back of refund expenses, these costs pale in comparison to chargeback fees.
Psychic and Spiritual Services Refund Policies to Prevent Chargebacks
Both online and brick and mortar psychic companies who encounter an unhappy customer are best served by offering a full refund rather than processing the transaction. This process builds customer trust and is vital in every industry, especially for merchants offering psychic and spiritual services.
A full-refund policy is recognized as a ‘best practice’ and eventually leads to a better merchant account at a lower rate. A merchant account is essentially a line of credit from the acquiring bank. This is why DigiPay works closely with psychic and spiritual merchants to make certain their business is presented in the best possible light. With our help, a bank will recognize that it’s ran the way it should be.
How to Avoid Disputes & Chargebacks by Improving Customer Service
A customer wants to spend money online and make an exchange with ease. Here’s a few tips to improve their experience with your company:
- Offer 24/7 Customer Service:
Forrester Research found that 44% of online consumers say that having questions answered by a live person, while in the middle of an online purchase, is one of the most important features a website can offer. Furthermore, another survey found that 38% of respondents have made purchases due to a live chat session.
- Include Reviews:
Over 70% of Americans say that they look at product reviews before making a purchase decision. And nearly 63% of consumers indicate they are more likely to purchase from a site if it has product ratings and reviews.
In addition to high quality e-commerce site that’s engaging, it’s essential to give customers an outlet for talking about your product. There’s a psychological phenomenon known as social proof in which a consumer is likely to be persuaded based on the thoughts and opinions of other buyers.
- Prioritize a Customer’s Happiness:
Excellent customer service is accomplished by helping your customers feel valued and appreciated. Personal touches like thank you notes, gift cards, and other personal follow ups go a long way. Simply listening to feedback in the spirit of genuinely wanting to help them will create an experience they’re likely to remember.
- Maintain Excellent Logistics & Fulfillment:
In the always-on, always-connected world, customers expect immediate confirmations and emailed receipts when they place orders online. A good CRM program can automate this process. The DigiPay TranZlytics Gateway is preconfigured to display a merchant’s contact information and customer service number to ensure that merchants are locatable.
- Implement a Billing Support Hotline:
Providing customers with a dedicated, toll-free number and email address will alleviate their concerns and build good will. High risk businesses that are highly accessible to customers have been shown to increase customer loyalty and decrease chargeback and refund ratios.
If you’re experiencing a high-level of chargebacks, we’re here to help. Let DigiPay share our expertise on how we can prevent them from happening. To schedule your free appointment, fill out the form below and we’ll be in touch shortly.
About The Author: Sandy Travers
Payment technology executive Sandra Travers is Co-Founder & Co-CEO of DigiPay Solutions, Inc.. Her years of experience in early-stage technology ventures brings a unique perspective to payments. Sandra manages operations and risk in addition to new product development.
More posts by Sandy Travers