Irma D. Rutherford Reducing Chargebacks is a challenge that directly relates to the main concerns of businesses: keeping revenues up, mitigating loss, and limiting liability in all areas. No matter how hard you try to prevent them, chargebacks will still happen. There is no way to eliminate chargebacks forever. However, by learning more about chargebacks, their causes, and how to prevent them, you will be able to manage the problem better.
Here’s everything you need to know to reduce the number of chargebacks that your business receives.
What is a chargeback?
Chargebacks are a reverse of funds by a credit card or debit card provider to the cardholder after a dispute is raised. Chargebacks are different from refunds, where the business initiates the reverse of funds. Instead, the issuing bank pulls funds from the account of the company, holds the money until they determine the legitimacy of a dispute, and then gives the funds to the customer.
Why do chargebacks occur?
Chargebacks are used to correct credit card fraud, mistakes, and accidental charges. It is stated that this is the purpose of chargebacks. Some consumers, however, dispute charges and request a chargeback for other reasons, namely to avoid the hassle of returning an item or requesting a return.
The chargeback system was first introduced more than 40 years ago to provide a recourse for victims of credit card fraud. It was intended to boost consumer confidence by providing a means for consumers to recover funds that were lost due to fraud. The cardholder could see the fraudulent charge on their statement, report it to the credit card issuer, and get the money back. The mechanism is a good idea in theory. It protects consumers.
Chargebacks can be used by customers to avoid the return process for goods that they are unhappy with or to solve problems relating to orders that have never arrived. A variety of reasons often cause chargebacks.
The product’s description was a far cry from the actual product.
Errors in the billing process (for instance, the customer has been charged twice).
Chargebacks that are requested for reasons other than legitimate fraud are referred to as “friendly fraud”–and these situations constitute $1.00 in copy costs US retailers and ecommerce companies $3.75. This is 19.80% more than the cost of $3.13 for a $1.00 copy in 2019.
Chargebacks can be a sign of poor customer service and security problems, especially if they are a result of fraud. Bottom line: If you are seeing a high number of chargebacks in your business, there are likely systemic issues.
How many chargebacks are normal for a business?
The good news is the overall number of chargebacks that businesses experience tends to decline year after year. The revenue lost is still staggering. According to Juniper Research, companies lost $17.5 billion in 2020 due to fraud and chargebacks.
Different acquirers and card networks have different standards for how many chargebacks are too many. In general, a 1% chargeback-to-transaction ratio is considered the highest acceptable figure. If you exceed the 1% threshold, your business may experience a number of negative consequences. If you have a high chargeback rate, your payment provider may impose higher transaction fees or other penalties. Stripe may start a reserve account for businesses when their chargeback rate increases or if they have a high risk of customers disputing or requesting refunds.
Card networks are also proactive in their approach to chargebacks. Visa & Mastercard have both programs to encourage businesses to reduce their chargeback rate.
Chargebacks can be reduced in eight ways
To prevent chargebacks, you must do everything possible to make sure that your customers receive what they need when they expect it. They should also be satisfied with the service they receive and have an easy way to contact you if any problems arise. This goal is achievable, but its implementation is a complicated and ever-changing project.
To achieve this goal, you must refine every aspect of your company’s operations. Here are some key areas to begin:
Prioritize the security of online and in-person payment
Chargebacks are often the result of fraud on credit cards. Making security a priority will have the greatest impact on reducing the number of chargebacks. You can take a few steps to minimize chargebacks, including:
Stripe, for example, offers extensive support around fraud prevention and chargeback mitigation. Stripe, for example, offers comprehensive assistance around chargeback mitigation and fraud prevention. Stripe Radar, our fraud prevention tool, is integrated into the Stripe platform by default. There is no need to opt in or integrate. Radar uses payment data from 197 different countries to help prevent fraudulent transactions. Radar is able to assign risk scores for every payment by learning from the millions of businesses that process billions of dollars in revenues annually. It can also block high-risk transactions automatically. Stripe’s additional chargeback protection will protect your sales from fraudulent disputes. It reimburses the amount disputed, waives dispute fees, and helps prevent loss.
Insecurity can be caused by not updating your POS software. This easily avoidable issue shouldn’t happen to you.
Invest in payment terminals and gateways that accept contactless payments using the extra-secure NFC and EMV technology. The swiped credit and debit cards are less secure because they transmit the actual card number, unlike NFC and EMV transactions that encrypt sensitive data.
Require signatures from customers and the use of PINs:
It is particularly useful for adding an extra layer of security to card-swiped transactions.
Return and refund policies should be clear
It can be harder to fight friendly fraud than simple credit card fraud. Chargebacks are often the result of customers not wanting to return an item or seek a refund. Create a simple, low-lift return policy that encourages customers to use the correct channels to return a product. Instead of giving up, they can dispute the charge through their bank.
It may seem that creating a simple returns process would hurt your bottom line. But this is not true. If your customer wants to reverse the funds after a purchase, you should do all that you can to ensure that it happens via a refund and not a chargeback. Returns and chargebacks both involve the return of funds to the customer, which is not what any business would like to do. However, refunds are more beneficial to companies than chargebacks.
