Chargebacks are expensive, time-consuming, and quite simply bad for your business. Here are 10 tried and tested ways to prevent them from happening at your company.
What are they and What Causes Them?
A chargeback is a process designed to protect cardholders from fraudulent payments.
If a cardholder notices a payment they did not authorize, they may request a refund from their bank. What causes these requests, however, is more complicated.
It may be a cardholder reporting a fraudulent purchase or because of a merchant error. It could also be a case of friendly fraud, where the cardholder does not remember the payment, isn’t aware that it was made by someone they know, or intentionally requests a refund to protest a store policy.
Why Do Businesses Need to Reduce Chargebacks?
The modern payment ecosystem is complex and sophisticated. Dealing with chargebacks is just as complex for businesses, and also expensive.
- Lost time and resources: You may contest a chargeback in a process called dispute resolution. This dispute is between your company, the cardholder, and the issuing bank. It may take its toll on your resources and labor management.
- Lost merchandise and profit: If the chargeback goes through due to payment fraud, your business stands to lose the product or service and the profits of the sale.
- Admin fees: Card networks have shifted responsibility for paying the chargeback fees onto businesses. You will also have to pay an admin fee to the card network.
- Higher card processing fees: If your chargeback rate is considered too high (usually above 1% of all transactions), card networks may consider your business high-risk and will charge you higher fees. You’ll also be put under a monitoring program, which adds more operational costs.
To learn more about the costs of the chargeback process, please refer to our guide to chargeback fraud prevention and detection. It even includes a handy chargeback fee calculator.
Best Prevention Methods for Businesses
So how do you reduce chargebacks today? Start by following these steps:
Set Customer Expectations
A clear, concise, and accessible return policy is the first line of defense against chargebacks. You should have an easy-to-find FAQ page that details what your company can do in terms of shipping, returns, and post-purchase customer service.
Another easy way to reduce chargebacks from disgruntled customers is to let them know exactly what to expect – especially when it comes to extra charges and shipping. Make sure you communicate these regularly and throughout the purchase journey.
Make It Easy for Customers to Reach You
There’s no shortage of communication channels available these days. Whether you favor phone calls, live chat, or email barely matters. The important thing is to ensure your contact details are easy to find online, and that you’re prompt in getting back to customers.
You should also set expectations about response time, and consider hiring extra help for seasonal spikes in customer requests, for instance during a Black Friday or Cyber Monday event.
Deploy Chargeback Management Software
Chargeback management software may seem intimidating, but it’s increasingly easy to rely on modern technology to prevent, monitor, and fight chargebacks. The key is to understand whether the software focuses on chargeback prevention (risk management) or chargeback management (dispute resolution).
One advantage of using software is the ability to automate. You can set up rules that automatically flag suspicious transactions or users and accept more payments with complete peace of mind.
There are a few points to consider, though, so make sure you read more about the best chargeback management software in this post. We cover the features to look for, how to integrate with your system, and how much it could cost you.
Read more about how SEON supported CryptoCoin.Pro by reducing weekly chargeback rates from $40K to $0.
Enable Secure Payment Processing Protocols
The good news is that payment processors know about the challenges of chargebacks. The bad news is that deploying security measures can add friction at the checkout stage.
Still, there are good practices to follow when it comes to securing payments (and deterring fraudsters).
- Data encryption: Acquire SSL certificates to demonstrate that your business is trustworthy and serious about data protection.
- AVS: The Address Verification Service matches the checkout address with that of the cardholder. It’s not bulletproof, but it may trip up less sophisticated fraud attempts.
- CVV: Certain online stores remove the Card Verification Value check to make payments faster. However, it’s once again a simple tool that could help with chargebacks in the long run.
- 3DS2: The most widely used form of payment security, 3-D Secure, and its second iteration, 3DS2, let you collect more information during and before checkout. That includes IP address, transaction history, and purchase amount. The data is shared between the issuing and acquiring bank as well as the payment processor. The analysis is fast, taking a few seconds on average.
- Tokenization: A process whereby transaction data is replaced with randomly generated strings of characters. It helps ensure that cardholder data remains confidential, making it harder to steal and use the card for transaction fraud.
- SCA: Strong Customer Authentication is part of the EU’s PSD2 directive, which forces businesses to increase authentication efforts. Most of it is covered with MFA (multi-factor authentication), one-time passwords (OTP), or biometrics, for instance.
Don’t Underestimate the Power of Billing Descriptors
Have you ever checked your bank statements and questioned whether a payment was yours or not? It’s a common problem that can easily be solved with better billing descriptors.
Make sure the static part of the descriptor points to your company name, and that the dynamic descriptor clearly helps understand which product or service was purchased.
Extra tip: You can add a support phone number in the second part of your billing descriptor to answer any doubts customers may have about their purchase. Some third-party companies, such as Ethoca, also manage billing descriptors for you.
Log as Much Transaction Data as Possible
Even if you don’t have real-time transaction monitoring capabilities, it’s worth logging as much information as possible to cover yourself in the future. Chargeback disputes require evidence, and that evidence comes in the form of transaction data.
While the best chargeback management software will come with data exporting and reporting functions, in some cases it’s simply a matter of clearly labeling everything in well-organized spreadsheets.
Finally, some chargeback software even comes with pre-built templates for disputing chargebacks, so all you need to do is fill in the blanks based on your own analytics.
Educate Your Team
Everyone from the marketing, sales and even customer service departments can help reduce chargebacks. It’s only a matter of being aware of the challenges and understanding how they can help to prevent them.
The key is to be proactive and incentivize customers to raise concerns with your company before they initiate a chargeback.
With fraudulent transactions, you should also train your employees to be able to recognize suspicious patterns, flag bad user profiles, and learn how to use tools to automatically detect high-risk transactions.
Confirm Users’ Online Presence
When it comes to chargeback fraud, a key giveaway is whether the customer’s profile appears legitimate or not. There are few better ways to check someone’s online identity than a social media and online platform lookup tool.
Here’s how it works:
- Users submit an email address or phone number as part of the onboarding or registration process.
- The lookup tool finds profiles registered using the same email or phone number. It all happens in real-time and behind the scenes.
- You get a profile picture, bio and, more importantly, a confirmation that the data has been used before.
SEON is the only fraud prevention company that checks 50+ online signals to help you decide if you should accept a transaction or not.
Typically, fraudsters do not have the time or resources to create a full online presence. Inversely, finding someone’s social and web presence is a strong indicator that they are a real person, and you can even use some of the public data during a chargeback dispute.
Use BIN Lookups
A BIN or Bank Identification Number refers to the first four to six numbers on a credit card. Using a BIN lookup tool, you can learn a lot about it, such as which bank issued it, the kind of card it is, and which country it should point to.
This is tremendously useful data for both the chargeback prevention and dispute stages. You can read more about how a BIN lookup can help reduce chargebacks here.
Apply the Same Logic In-Store
One should keep in mind that brick-and-mortar vendors that accept payments through POS terminals are just as likely to be victims of chargeback fraud as online stores. Here are some tips to keep in mind when in-store:
- Try to get a signature for swipe transactions: It may trip up fraudsters and offer protection during a chargeback dispute.
- Train your staff for the best practices: Avoid swiping cards more than once, record the transaction data, etc…
- Avoid manually entering credit card numbers: Human error is one of the contributing factors to high chargeback rates.
- Keep and file receipts: You never know how long after a purchase a chargeback request may be made.
How SEON Can Help?
Whether you’re trying to prevent chargebacks from happening or equipping your team with all the data you need to dispute them, SEON can help. We’ve designed our entire system to be flexible, modular, and effective for risk managers in any vertical.
Hopefully, this post will give you a better understanding of the simple steps you can take to reduce your chargeback rate today.
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Tamás Kádár is the Chief Executive Officer and co-founder of SEON. His mission to create a fraud-free world began after he founded the CEE’s first crypto exchange in 2017 and found it under constant attack. The solution he built now reduces fraud for 5,000+ companies worldwide, including global leaders such as KLM, Avis, and Patreon. In his spare time, he’s devouring data visualizations and injuring himself while doing basic DIY around his London pad.
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