Besides the obvious loss of revenue caused by chargebacks, perhaps the greatest pain businesses experience is the ‘uncertainty’ once a transaction has been processed. – To have this unknown factor play on the ‘books’ and hang around like a dark cloud over the business can certainly cause frustration and a hinderance with regard to the financial trajectory of the business.
Know your enemy
You cannot fight a battle if you do not know the nature of the opponent. This is in every combat piece of literature, known as the ‘key factor to defeating a problem’. — Therefore, what is the problem, precisely? In business, besides great customer service, the main object is to pay attention to revenue; profit and loss, etc. it’s about money and making money. That’s the chief reason for business.
With this in mind, business owners are aware of other factors that can produce distaste to their marketing efforts and revenue. Some include blatant fraud, business competition and poor management or ineffective staff. However, a poisonous factor of which businesses ought to be aware is the ever-present, often looming nature, of chargebacks.
Why do chargebacks occur?
There are several reasons why chargebacks occur. Some industries such as online dating, nutraceutical merchants, gaming, travel, adult products, etc., experience higher chargeback ratios than other businesses, but there are a few reasons to consider.
In the payments industry, chargebacks generally occur to what is referred to as ‘friendly fraud’. Now, there are two types of this: one is legitimate and the other is somewhat questionable. In the latter, when a customer purchases, for example, a nutraceutical product to help him or her lose weight, and then after a month, realise the product has not helped, they may complain and decide that they want a refund. This is quite common.
Another, also common story, occurs in the adult and online dating industries. In the beginning, a user will pay to use the “premium” service, hoping to discover Mr Right or Miss Right; but when things do not work out, they may ask for their money back, claiming that the service was unfair or unsatisfactory.
Adult accounts face similar problems in that a credit card transaction may occur in which the spouse of the purchaser discovers such a transaction; the emotion of either may force a return of the product or reversal of the billing subscription order.
How are chargebacks affecting business today?
Alarmingly, the chargeback rate is rising 20% per year. Yes, this is a major concern. The reason? According to studies, the major shift in consumer behaviour has a significant role in this upswing. Since consumers are now being placed at the top, meaning that customer service is taking the forefront of business decisions, customers are more entitled to return items, and have more authority on returns.
This brings us back to friendly fraud. The increase, according to this study is not unequally alarming: there’s been an increase since 2016, growing by 41% on average.
This number is excessively high, and duly must affect businesses worldwide, with merchants taking a major hit and major loss of revenue.
What can you do to fight chargebacks and indeed win the battle?
- Customer service
Customer service is one of the most important factors to consider improving right now in order to reduce chargebacks significantly. This is not merely an opinion. Facts and studies support this in countless journals.
For instance, in the book, written by a leading software company, entitled, Counting the Customer: the complete guide to dynamic customer care, it takes 12 positive customer experiences to rub out one bad experience. This merely shows how necessary it is to push on in preventing poor customer service, and to offer excellent, top-notch service.
According to a recent study, found in the same software guide, it was revealed that 70 % of unhappy customers whose issues were resolved in their favour said they would be willing to return. That’s an above-average number; and one your business would definitely want to keep around for customer retention.
- Billing Descriptors
Bizarre names, codes or numbers can confuse a customer. When your customer makes a purchase on your website, for example, they intend to see the name of your business on their credit card statement.
If it’s a group of numbers or obscure wording, your customer may query this. Often, customers forget about a particular charge; and often they do not trust the wording on their statement if it is not “ABC Technologies” or something for which they are aware.
So be sure to list your business name (credentials) as your customers know it. This will help reduce queries and chargebacks. The importance of correct billing descriptors is shown to reduce chargebacks, according to this online report.
- Advanced Technology
In-store merchants (or face-to-face customers) have the opportunity to prevent fraudulent transactions by utilising chip technology. This is not the case with online shoppers.
One of the few ways you can prevent fraud is by using what Visa introduced a while ago; that is, 3D protection. This is an online verification system that helps your customers feel safe when shopping on your site. This 3D secure processing authenticates and validates payments securely.
This will prevent chargebacks because your customers will feel safer using your merchant account online, and you will be certain it is the valid cardholder who is using the card.
Why you need a winning solution
A chargeback, for the customer, is simple: they receive their money back; for you, the merchant…a different story: you will have lost a sale, will have to pay the levy/fee to your acquiring bank, and may even reach your chargeback threshold—and this could lead to your company going into the red; that is, going into a higher-risk bracket, which comes with more charges.
Furthermore, it may even end your business from operating with traditional banks, in which case you may have to opt for a specialised card processing alternative.
Finding a solution to all these factors may be daunting for your merchant account.
For this reason, which is an absolute necessary to consider, your business ought to use the services of a reputable, well-connected payments processing company such as iPayTotal. — With experience in the field of high-risk industries, chargebacks are a common theme to the experts at iPayTotal, who know all the methods and means to avoid chargebacks as well as to manage them once they occur.
iPayTotal offers a comprehensive and truly “total” solution to all your merchant requirements, providing you with the best built-in anti-fraud protection, 24/7 support and a robust payments gateway facility on your website, ensuring customers who make purchases are indeed who they say they are.
A seamless transaction system in real-time offers your merchant account the freedom to pay attention to customer service and other aspects of your business, all the while knowing that your business is in capable, ready and efficient hands.