Optimize chargeback management and lower rates

Posted by Caroline Bagby | October 27, 2015 | Payments management

The holiday season is quickly approaching and with that comes a huge boom in consumer shopping. Online shopping during the holidays rings in over $100 billion in business, making the risks of fraud higher and can even amount to a 50% increase in chargebacks.

In 2014 it was reported that chargebacks cost retailers $11.8 billion per year. There are multiple touch points where these costs are incurred, such as:

  • Processor or merchant acquirer fees, some costing as much as $75 per chargeback
  • Loss of merchandise
  • Loss of shipping if it applies
  • Customer service time
  • Card network fines
  • Potentially having your merchant account closed

Most businesses aim to keep a standard chargeback rate of 0.5% or lower and are incredibly wary of approaching a 1% chargeback rate as that’s where they get into trouble. Standards vary industry to industry and even business to business, but minimizing chargebacks is often a priority. To protect your business from cost intensive chargebacks, there are certain precautions you can take to decrease their chances.


Common chargeback reasons

There are several types of chargeback reasons, each with its own likelihood of the consumer winning the battle. It’s important to understand the possible reasons and track your own chargebacks so you can target where there’s room for improvement in your operations.

Credit card fraud
Credit card fraud is the most common cause for chargebacks. This happens when a card is used without the consent of the cardholder. Sometimes this means a consumer forgot they made the purchase or someone in the household used the card without permission, termed “friendly fraud.” Other times the consumer’s card was physically or digitally stolen. In this case, your business is solely responsible for the chargeback.

Service not provided or merchandise not received
When a customer orders something they’re expecting to receive something in return. If their package never makes it to their home or the service they requested was not fulfilled, the customer has reason for requesting a chargeback.

Credit not processed
Sometimes, especially with online shopping, a customer will return something to you and expect to be reimbursed. If that’s not done within an expected timeframe, the customer may call and dispute the charge.

Cancelled recurring transaction
When subscription services or anything with a recurring bill is cancelled, there can be oversights that do not cancel the customer’s recurring payment. If this happens, the customer can request a chargeback for the months of cancellation.

Technical problems
During the checkout process there can be several technical errors, such as page reloading or error messages, that charge the customer card twice, referred to as duplicate processing. In this case, the customer can dispute the second charge.


Chargeback process

A filed complaint is not as simple as a customer requesting money back and the bank giving it to them. There is a necessary cycle to go through to ensure the validity of the dispute and cover the consumer and your business.

Process of a chargeback


Avoiding chargebacks

While favor is given to the consumer, there are several steps you can take to avoid chargebacks all together and decrease your chances of facing them.

Use clear billing descriptors
A lot of chargebacks happen when a cardholder gets their statement and doesn’t recognize the name associated with the cost. This is known as friendly fraud as the cardholder did make the purchase but does not recognize the biller. To avoid this, make sure your business is spelled out explicitly as the one selling the goods or services, rather than as a parent company or acronym. Including a phone number and/or web address is also helpful.

Raise flags when billing and shipping addresses don’t match
While customers often ship to varying addresses, you should have a system in place that either allows customers to set and categorize their addresses or that takes another security measure, like a security question, when they try to ship to an address that isn’t a saved one or is new. A standard protocol will benefit both you and the customer.

Require security codes
Have an additional field on checkout that requires the security code, or CVV, found on the back of the customer’s card. It’s often a good idea to also ask for the zip code associated with the card.

Follow processor protocol
Oftentimes your provider will have guidelines for you to follow to ensure the utmost security when processing payments.

Pick your battles
Challenging chargebacks costs money, time and additional fees. Depending on the amount of the chargeback weigh whether or not the effort is worth it. If you have a history of chargebacks it could hurt your relationship with your providers and even get you shut down from using payment methods like Visa and Mastercard.

On top of additional security measures you can take, it’s always a good idea to keep a searchable database of your own that details and categorizes chargebacks. If you have an organized method of recording, you and your team will be able to see trends by reasons and even time of year to help you better avoid and deal with future chargebacks. While chargebacks can definitely be a reason for worry in your business, if you follow standard protocol, you’ll be able to stay on top of chargebacks and in the clear.

Pazien lets you analyze chargebacks by provider to help you better understand where your payment strategies are successful and where there’s room for improvement. You can also see breakdowns by payment method, currency and reason code. To learn more on better chargeback management, and other aspects of your global payment strategy, enter your info below.

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