I have worked in the payment industry for almost 20 years and started out as a fraud investigator, so here is my best practices to avoid chargebacks.
Chargebacks is and will always be a hassle. They impact your turnover and in worst case they can ruin your business.
The very first step in reducing chargebacks is determining the actual chargeback reason.
The different types:
Criminal Fraud: This is known as credit card fraud. Criminals gain access to card details and make unauthorized transactions.
Merchant Error: This is often caused by processing errors, faulty business practices, unchecked policies. There are several scenarios where merchant missteps that can cause chargebacks.
Friendly Fraud: This is known as chargeback fraud, this type of chargeback is often due to lack of knowledge or understanding from the consumer.
The difference between chargeback and refund
It’s very simple, if the consumer contact the card issuing bank and request the bank to reverse the transaction from the merchants bank – it’s a chargeback. If the customer contact the merchant and the merchant returns the money to the customer – it’s a refund.
Avoiding chargeback completely is almost impossible, but if you follow our best practices you have done what’s in your power to prevent it.
The text on the customers credit card statement or bank account is called the “descriptor”.
Customers might accidentally engage in ‘friendly fraud’ just because they don’t recognize the billing descriptor.
The single biggest reason for chargebacks is that the cardholder doesn’t recognize the charge on their bank account. My recommendation is using the name that appears on your website(your ‘doing business as’ name), rather than the legal name.
Providing second to none customer service is the best way to handle dissatisfied customers. The customer will ask for a chargeback from the bank, if it is easier to get in touch with the bank than you.
Make sure that you are available for your customer. Providing the customers several ways to contact you is good business practice. I have seen several websites where the contact details are hidden. Your website is like a car; brakes and throttle is always placed in the same order. be sure to share contact information in all places a customer would expect to find it.
Your customer relies on you for all the necessary information. In the physical world, customers can handle a product and evaluate all of the most important qualities for themselves.
Therefore the online product descriptions have to be quite elaborate. Make sure to answer as many of the questions the customer might have.
Images of your product should be abundant, make sure to have pictures from different angles and zoomed in on all details.
If you use trial on your subscription service, you can minimize the amount of chargebacks, by sending out a mail a few days before the first billing, reminding your customer that they are going to be charged a fee on a specific day.
Some of your customers in trial will stop using your product during the trial, but forget to cancel it. Charging these customers “out of the blue” will annoy them and our analyses show that some of them will request a chargeback.
You can minimize the chargeback risk by letting the customers in trial know before you charge them, so that they can decide, whether or not they want to keep their account or to cancel it. It’s the right thing to do!
And it’s the perfect time to ask them for feedback or if they are having any issues with your service.
Fast shipping or access to your services is a great way to avoid potential problems.
If a customer does not receive their product or service in a reasonable or anticipated time, they may lose confidence in you and your business and may end up requesting a chargeback.
If you sell physical products, the best solution is to give your customers access to tracking details, as soon as the item is shipped. If unforeseen problems with delivery or access to goods or services arise, be honest and upfront about the issue and provide a new expected delivery date.
The world revolves around customer service. If a dispute is not resolved between cardholder and business, the cardholder may contact card issuer to find a solution. The most effective way to prevent chargebacks in the first place, is to offer easy and effective solutions to the challenges. While it may feel like losing money if you offer a refund, it is often the best solution to keep the customer happy and avoid disputes and negative online reviews.
Fulfill cancellation requests promptly, if the customer asks to discontinue a service, grant that wish as soon as possible.
Make cancellations easy and consider a no-strings-attached contract. The more restrictive you put in a contract, the more resistance you will receive.
Keep it simple and painless for a customer to cancel service.