A chargeback occurs when a cardholder calls his/her card issuer to dispute the charge on his/her account. If one of your customers files a dispute, you’ll get a notice from your acquiring bank that a chargeback is pending. You can either accept it or appeal it. If you accept it or if the acquirer or card issuer denies your appeal you’ve got a chargeback.
A huge number of chargebacks can break a business’ bottom line and reputation among credit card merchants and processors. Chargebacks are meant to protect consumers from unauthorized transactions. Customers can simply initiate a chargeback transfer instead of wasting time arguing with suppliers on the legitimacy of a transaction. Sometimes, chargebacks are caused by clerical errors. Regardless, businesses should take measures to reduce them.
You can avoid chargebacks by sticking to a DBA (Doing Business As) name that your customers will recognize. Most customers initiate chargebacks when they see payments to companies that they do not recognize as they may know your product brand but may not be aware of the company behind it. It is up to you to ensure your credit card charges are understood by the customers.
Have your phone number printed on the customers’ billing statements. In case customers do not know what they are being charged for, they will be able to contact you directly. This will reduce instances of chargebacks.
When a customer’s credit card is fraudulently used for a transaction, the merchant is held solely responsible. Therefore, it is up to you to ensure that the credit cards used to purchase your goods or services have not been stolen. If you are accepting transactions through a Commission Junction, make sure that you’ve installed fraud tracking mechanisms as scammers tend to sign up as affiliates and make fraudulent transactions.
Verify the address, customer details and phone number by the bank that issued the credit card. Many banks offer fraud verification services including CVV2 and AVS (Address Verification Services). You should also put tougher credit card verification steps for transactions originating in countries that are known for credit card fraud. Generally, orders from the Middle East, Asia and most parts of Africa are considered high-risk.
Sometimes, chargebacks are initiated not because of fraudulent credit card use, but because the goods or services purchased are substandard or did not meet the customer’s expectations. Make sure you provide value to your customers and clearly indicate what they should expect when they make a purchase. On your website, have a refund policy page that indicates when and how customers can dispute charges for goods or services you provide.
Do not accept an expired credit card and make sure you obtain authorization (get an invoice signed with the credit card hold signature) for the full amount that is on sale. All transactions should be paid in full and from the same credit card. Do not accept to split declined transactions (this might be an exception for SaaS companies). If you are shipping any large suspicious order, call or fax the customer to confirm. If you cannot reach the customer, the order may have been fraudulently placed and the fraudster may be deliberately keeping out of reach.
To ensure your chargeback percentage stays at the bare minimum, take steps to ensure customers know what they are being charged for and what to expect. Be transparent with your services, products, and your fees. Your website should indicate the costs that customers will pay, after how long they should expect a product, any guarantees or warranties on the product, shopping refunds or return policy and so on.
Though they are usually a small percentage of the total transactions of a business, chargebacks can lead to major losses especially when you are starting up and sell high ticket items. To ensure you do not get caught in the web of online fraudsters, take steps to protect your business as well as your customers.