A chargeback is when a customer disputes a charge on their credit card, and the bank ends up reversing the transaction. And if you've ever been the victim of a chargeback, you know how frustrating it can be.
Chargebacks can happen for a number of reasons, but usually, it's because the customer didn't receive what they ordered, fraudulent activity, or they were charged more than they expected.
If you're running an online business, it's important to understand how to prevent chargebacks from happening in the first place. Here are some tips to help you out.
What are chargebacks?
A chargeback, in the most general sense, is when a customer disputes a charge on their credit card statement with the issuing bank. More specifically, it's when a customer asks their bank to reverse a charge after making a purchase. The bank then investigates the dispute and either rules in the customer's favour or against them.
If the bank rules in the customer's favour, they will refund the disputed amount to the customer. If the bank rules against the chargeback claim, they may be subject to additional penalties depending on their agreement with the issuing bank.
Why do companies not like chargebacks?
Chargebacks are there to protect credit card uses against fraud, but they can also be a costly inconvenience for businesses. When a payment is reversed, it means your business won’t be paid and you’ll be required to pay a chargeback fee. This results in your monthly budget being skewed, as well as a loss of profits.
On top of a financial wobble, chargebacks and credit disputes can leave a negative mark on your businesses reputation and is a key metric that financial services companies measure. In the future, if you request loans or financial services, lenders will take into account your businesses credit record and the number of disputes or chargebacks you have incurred - a bad credit score or a high number of chargebacks deems you a risky investment.
With all this in mind, it is important to understand how chargebacks work and what you can do to prevent them.
How do you avoid chargeback when selling online?
Credit card chargebacks have become a huge problem for online merchants in recent years. Chargebacks can be costly and time-consuming, so it's important to take the necessary precautions to protect your business. Follow these tips and you'll be less likely to experience chargebacks.
1) Make your dispute and refund policy clear & readily available
Many customers may turn to the banks for help when merchants aren’t providing correct information, or simply because it’s easier to cancel a transaction with a credit card company than with an e-commerce store.
Tips for making your refund policy easy for your customers:
- Offer free shipping on returns: Shipping returns may be expensive, but in some cases, they may end up cheaper than paying chargeback fees.
- Add a FAQs page: Gather information regarding frequently asked questions and talk to your customer relations team to find out what information customers need regarding returns.
- Provide 24/7 customer service: Chatbots are a great way to provide informative messages quickly and at any time of day.
- Automate your return process: Make it easy for customers to submit and track their returns.
- Enquire about returns: This will help strengthen your understanding of what results in chargebacks and returns.
2) Offer helpful customer service
If you make it easy for customers to reach out to you, you decrease the risk of them simply running to the bank to cancel any payments. Making your help centre readily available to your customers provides them with a satisfactory solution to incurring a chargeback.
One of the biggest wins for companies is to offer support during the cancellation of subscriptions. Subscriptions are often one of the most important forms of income for an e-commerce store, but customers don’t always remember to cancel their subscriptions correctly, or on time.
Merchants should make it easy for customers to cancel their subscriptions, and they should also be lenient when it comes to offering refunds for customers who haven’t been using their subscriptions for some time.
3) Bolster fraud prevention
The most common reason for chargebacks is the occurrence or suspected occurrence of fraud - this can happen when a credit card is stolen or lost. As a merchant, it’s important that your services are deemed safe and fraudulent free.
During the billing process, ensure that all the correct information about your company is provided on this statement; include the company name or domain name so that the customer can easily identify the purchase.
If you’re using Shopify Payments, you can edit the billing text to include the necessary information and your company’s contact details so that you can be the first means of contact.
After the initial payment, always send your customer a receipt so that they have adequate proof of payment and a reminder of what they purchased.
As a business, you can also prevent fraudulent transactions by using an AVS checker. Shopify’s built-in fraud analysis tools can help you determine whether it is safe to ship products to the customer.
4) Analyse your chargeback data
Collecting, understanding and reviewing data is an important part of your e-commerce business’s success. This is where POS comes into play.
A point of sale, or POS, is the system used by a business to track inventory, sales and customer data. The purpose of a POS system is to provide accurate information about what items are being sold, how much money is being taken in and who is buying what. This information can be used to make informed business decisions about product pricing and inventory levels. A POS system can also help track customer behaviour so that businesses can better understand what products they might want to offer.
Integrate POS software to identify trends to combat fraud from employees and customers.
5) Follow payment processing protocols
When it comes to payment processing, it is important to follow the proper protocols to avoid any disputes with customers. By ensuring that all payments are processed correctly and that customers are notified of any delays or issues, you can help keep your business running smoothly.
In addition, following payment processing best practices can help protect your business bank account against chargebacks.
To conclude chargeback protection
Chargebacks can be costly for merchants, both in terms of the money lost and the resources required to dispute them. Fortunately, there are a number of steps merchants can take to prevent chargebacks and reduce the chances of a credit dispute.
Educate your customers about the refund policy, use clear and concise product descriptions, ship products quickly and track them carefully, respond to customer inquiries promptly and use secure payment processing methods.
We hope these effective chargeback fraud prevention tips and tricks pointed you in the right direction for keeping your e-commerce store running smoothly for both you and your customers.
Feel free to get in touch with us to discover how you can optimise your Shopify store or e-commerce business strategies.