If you are a merchant, chargebacks might be the single most annoying things you need to deal with regularly.
Even though the chargebacks are meant to protect the customers from dishonest merchants, it can cause real problems to the merchants who are just the victims of mischievous customer disputes.
Also, online merchants are at greater risk of chargebacks or unsuccessful disputes, mainly because of the absence of an authorized or signed receipt as a solid proof of a sale or delivery.
These chargebacks can be caused by both valid (e.g. damaged things and duplicate transactions) and invalid (fraudulent) reasons. To minimize and prevent these chargebacks, irrespective of whether the reason for the dispute is valid or not, merchants need to take necessary steps.
Quick Refunds to avoid chargebacks
This is entirely for the valid or eligible customer who genuinely deserves a refund.
Sometimes, your customers can be charged twice for the same purchase, which is called a duplicate transaction. In this situation, your customer will ask for a return. Also, sometimes, the customer doesn’t get the right products or gets the damaged ones, in which case, the refund request is valid and merchants should not make any delay in refunding the amount before any formal or legal charges are pressed by the customers.
Only by handling these valid refund requests, merchants can prevent a lot of chargebacks that might save them from permanent or temporary limitations by their card processing companies.
So, whenever you come across a genuine refund request, formal or informal, like this, make sure the customers are refunded immediately with a “sorry”.
Also, make sure your refund policy is clearly mentioned in the terms and conditions or agreements page. This way, you’ll have legal and authorized clearance to take your time to initiate the refund request. However, if your customers are not aware of the refund policy before they make the purchase, you might get into some legal trouble. So, to ensure you are protected from it, what you can do is – allow the users to click on something like “I agree” where you can link all the terms and policies of your business, especially the refund policy.
So, to recap – process all the refund requests, the valid ones, as soon as possible – before customers chargeback. And let the customers know about your refund policy beforehand.
Respond to your customers
Well, this goes without saying – customer support is crucial to prevent and minimize chargebacks.
It’s relevant to the previous point/way we just mentioned.
The secret is communication.
When you communicate with your customers, your customers are assured that they will get the services that they are paying for. This is not just about getting the right product or service. It is about the commitment merchants make to their customers.
But when the customers are not addressed properly about their problems, customers tend to get frustrated with little issues like accidental double charges or even delayed shipping. You may not know when they complain to the credit card company about the small unintentional mistake by your system.
To ensure they don’t reach out to credit card companies for every small problem, you need to address their issues quickly. Quick enough to make sure your customers come to you before reaching out to the credit card companies. You need to earn their trust and confidence.
The best way to do this is by having a good customer support team on board. If your customer support team is responsive to customer queries, they will be assured that their requests and complaints are being looked at. So, don’t forget to train and instruct your team accordingly.
That being said, it is advised to prioritize the requests on the basis of urgency. The queries or requests your team receives should be dealt with urgency. Also, it is best if your team can separate the requests and complaints depending on the type. This way, the complaints and the requests get dealt with quickly. This will lead to higher customer satisfaction. Customers will have more faith in you than ever before and reach out to you before complaining to the credit card companies.
Manage canceled subscriptions
Subscriptions, more particularly, the canceled subscriptions can force multiple chargebacks on merchants. This subscription cancelation problem is only applicable to those businesses who serve their customers over a long period of time.
Netflix or a monthly subscription of The Entertainment Weekly is the perfect example of businesses that can be forced into these chargebacks.
These types of companies ask for confirmation of payment just once. When the customer agrees to the daily, weekly, monthly or yearly terms, the business, as in the service provider, will charge the agreed amount from the customer’s account after the certain period, without needing to ask for permission.
This is where the problem starts.
In each transaction, three parties are involved. The merchant, business or service provider, the credit card company or the bank and the customer himself. When the merchant charges the customer, the request goes from the merchant to the credit card company or bank. The bank then approves the payment as it was already approved by the customer once for several installments after a certain period.
This is where the communication gap strikes. In each installment, the customer himself is kept out as the authority. So, the credit card company or the bank is unaware of what is happening between the customer and the merchant. When the merchant asks for that periodic installment, the bank approves.
But sometimes, even after the cancellation of the subscription, a merchant account can request for the installment, intentionally or unintentionally. This happens because the merchant sometimes forgets to update their database. So, when the customer reports that to the card company, merchants face chargebacks, sometimes multiple from one customer. That’s why it is important to update your database as soon as someone wishes to opt out from the subscription. Otherwise, you might lose your merchant account for good.
Shipping or delivery confirmation as evidence of order fulfillment
This applies to the merchants who provide physical services, more specifically, physical products.
As I have mentioned, the chargebacks can be because of either a valid reason or invalid or fraudulent. If a customer orders a product and pays for it in advance, but doesn’t receive the product, then his refund request is a valid one. This miss-out on delivery can happen for several reasons. The merchant might not have the products in stock or the delivery was somewhat compromised or for any other reason. Regardless of the reason, the chargeback is to be expected and there is no way to avoid it.
However, there are some unfortunate cases where customers can claim the return even after receiving the product.
To be honest, the bank and credit card companies will always be partial towards the customers if you don’t have any solid proof that the request or the order has been met, there is no way you are going to have the upper hand in any disputes.
One way to ensure that you have such evidence as proof of your delivery is by taking help of delivery services who offer delivery confirmation from the recipient.
This means, every time you ship a product, upon receiving it, your customers are bound to confirm via the shipping services about the delivery. So, you get valid proof of delivery with each which will protect you from the fraudulent claims of not receiving the shipment.
Ask for complete security details from the client to prevent fraudulent activities
Online businesses are most vulnerable to fraud. That’s why there is nothing called “too protected” in this sector.
To ensure someone other than the cardholder himself is not using the card, you must ask for complete security details, including the security code on the back when confirming a purchase.
If you fail to ensure the customer and the card owner are the same person or the purchase is made without the card owner’s consent, you might get charged for it by the real owner of the card later on.
So, always ensure the person who is making the purchase is authorized to make the purchase.
Limit the transactions from suspicious or problematic clients
In business, it is very important to keep a close tab on what is happening with your clients. Apart from helping you with the market research, it helps with the individual purchasing behavior of each of your clients.
The purchasing behavior of your clients tells a lot about you. If these records include the duplicate transactions, unauthorized purchases and other problematic issues, and if the numbers of such issues are high, list the clients as problematic or fraudulent. Then you can either completely restrict their access to your business or partially limit it according to your own understanding.
Limit the number of transactions in a certain amount of time
Sometimes, due to a buggy online system or slow internet connection, the confirmation of purchase might not reach to a customer. In those circumstances, the customer would generally think that it was an unsuccessful purchase and the customer will try to purchase again.
However, what he doesn’t know is the amount being charged every time a purchase is being made (which may seem like an unsuccessful purchase to the customer).
When the customer sees these duplicate transactions, the chargebacks are certain for the merchant even though it was an unintentional error from either the customer’s end or the merchant’s end.
So, to avoid such situations, where duplicate transactions are being made, you must take necessary steps and this includes limiting the number of transactions within a period.
For example, if a customer purchases 3 of the same laptops in 3 attempts within 5-10 minutes, be sure the latter ones are duplicate. So, for such cases, the transactions from one customer in a particular time period, say, an hour, a day, a week or even a month must be limited to a degree. The limited number of purchases and the limiting time period depends on the business and their products.
Use address verification
The best way to prevent chargebacks for fraudulent transactions is by marking the potential fraud beforehand.
One easy way to detect a fraudulent purchase is by checking the shipping or delivery address; but before you must verify the address of the customer. You can either initiate the verification process for all your customers or just the ones who are irregular to your business.
Once you get the shipping address verified, you can track and predict any unauthorized purchases with his financial details. In such cases where the shipping address doesn’t match the verified address, you can simply hold the order for further verification of the purchase or you can simply decline it. But whatever you do, make sure the best and the worst case scenario for these unfortunate events are addressed properly on the terms and conditions or policies page.
Track communication with customers
This is the last line of defense to prevent chargebacks by predicting and declining fraud purchases.
Here, tracking communication mainly refers to the idea of keeping records of the IP addresses from where the customer usually makes a purchase.
For example, if you notice that a customer who always uses his phone or his PC to order from your site (because you have 2 IP addresses recorded for that customer), suddenly ordering from a different IP address which he hasn’t use before, you can put it on hold until you are certain that this is the customer.
We are fully aware that even after all these, a merchant won’t be able to completely mitigate the chances of any chargebacks in the future. However, that should not be the goal because there always will be chargebacks. The target should be to minimize the number so low that it doesn’t affect the trust your merchant account provides company has with you. And the way to this is – communicating with clients and identifying fraud before they happen.