A credit card chargeback happens when a client contacts their credit card issuer to file charges. If an issuer sees a claim valid, then your merchant account is debited for the credit card charge which had previously cleared.
Claims can be considered valid for various reasons. In some cases, the purchase was fraudulently made by a 3rd party using the customer’s identity. Clients can also file charges if they:
- Do not recognize the charge on their credit card statement
- Were incorrectly billed
- Feel that the service or product was not substandard or not what it’s presented to be
- Did not receive the service or item they ordered
Chargebacks can cause a lot of troubles for a merchant. When clients dispute a transaction for a reason, the merchant will go through a complicated process. Not only will you lose a sale or pay for unnecessary fees, too many chargebacks can also force your processor to terminate or close your merchant account, making it harder for you to obtain one with your history.
Thus, the merchant will need to be well aware of chargebacks and implement some ways to manage their chargeback ration.
8 Ways To Reduce Chargebacks
- Follow The Processor Protocol
Every processor has its own protocol in terms of accepting credit cards.
For card-present purchases where a card is swiped in-person, you need to check the card’s expiration date and enter the security code on the back and front of the card.
Your processor may need to give you permission in processing card-not-present transaction like those made over the phone or online. In order to be approved, you need to take additional information including the client’s IP address, social media profiles or digital signature.
There are some processors that even want an additional identity confirmation via services such as MasterCard SecureCode or Visa that require customers to enter an extra password in order to authorize debit or credit card payments online. Also, you may even be required to get proof of delivery when shipping items.
Regardless of your processor’s protocol, you will need to follow all of their guidelines in order to prevent any future problems, especially chargebacks.
- Use Only A Clear Payment Descriptor
Most disputes have to do with an unclear payment descriptor. This payment descriptor is your merchant name and other details which appear on the client’s credit card statement when making a purchase.
If you list a different name, something that your client might not recognize— for instance, a parent company rather than your store’s brand name— the client may not recall his purchase and mistakenly file for a chargeback.
The solution is that you need to be sure that your descriptor shows what the consumer will recognize.
- Get It In Writing
One of the most important things you can do to protect your business from chargeback is to require clients to sign a contract, stating the specific services that your company will provide. You need to give them lots of options and ask them to return the signed contract via email, fax, or electronically sight it online or a fingerprint through a smartphone app.
The key here is to get your client’s authorization in writing. This works even if the card is not present, with a contract stating and authorizing you to bill a client’s card in this amount.
- Promptly Deal With Customer Service Issues
Your processor will highly likely give you chargeback notifications. So, you need to check it out quickly is a customer is filing charges. You can address a chargeback easily with good customer service. If a client expresses dissatisfaction, then you will need to get in touch with them promptly and try to solve the issue.
Chargebacks are usually initiated when a client feels as if they’re unable to receive their funds via the company’s customer service department. However, when you clearly display your customer support contact info on your site and making refund policies available, then you can prevent your customers from feeling powerless and even encourage them to think twice before filing for a chargeback.
When a customer file for a chargeback, you will have a small window, usually 7 – 10 days’ time, in order to dispute it through the channels required by MasterCard and Visa. During this period, it is helpful that you contact your client directly and ask for the reason for the chargeback.
Clients can undo chargebacks by contacting their issue, so if you genuinely reach out to the dissatisfied party in a timely manner, then you can even persuade them to stop the claim. And if the customer’s complaint is valid, then you can issue a refund in order to concede the chargeback.
In case a refund is not an option, then this exchange can at least provide you some idea why your client initiated a chargeback. This info can be useful during the dispute process or when assessing your policies for chargeback prevention.
- Learn The Signs of Fraud
Bedford Slims Vapourette Company, a New York e-cigarette retailer, received its first chargeback in 2012. Someone has used a stolen card in order to purchase the business’ products and the rightful owner disputed the charge.
Jesse Gaddis owner of the said business, went to the local precinct, with police telling him that they could not do anything with Internet fraud.
Since then, the owner developed a chargeback protocol that allows him to detect any signs of fraud. In addition, they moved their payment gateway and shopping cart functions that transfer information to their payment processors to a more secure system.
Also, they pay attention to alerts and look for any suspicious details— incorrect credit card security code or shipping and billing addresses don’t match. This way, the company can make inquiries in order to ensure that the client is indeed legitimate, allowing them to prevent fraud.
- Keep Good Records
At a minimum, you need to keep accurate records of your clients’ credit card transaction dates, the authorization information and the number of purchases. This should help you fight chargebacks.
If you have signed documentation such as contracts or receipts, these can help too. Although there is not much you can do if it is a fraudulent purchase, however, it can help you win a dispute against a client who may have forgotten the purchase or is trying to take advantage of the chargeback system.
- Train Your Employees
It is always a good idea to train your employees on how to deal with both card-not-present and card-present transactions. Good training means that you can teach them fraud and techniques for chargeback prevention such as verifying signatures for card-present transactions, searching for suspicious transactions and obtaining signatures on sales orders and contracts when appropriate.
- Learn To Fight
Each chargeback will cost you extra fees. Not only could that, having a history of chargeback hurt your reputation with your merchant account providers.
You simply can’t devote your resources and time in fighting every filed chargeback however, if you think that you can win the case, then you need to pursue the fight. And if it is too much to handle on your own, then you can consider hiring a chargeback management company to help you.