What are Credit Card Chargebacks?
A chargeback is a bank-initiated refund for a credit card purchase. Rather than request a refund from the merchant who facilitated the purchase, cardholders can dispute a particular transaction by contacting their bank and requesting a chargeback. Chargebacks are not inherently bad. In fact, when credit cards first started gaining popularity, government officials decided that consumers needed a fallback option. There had to be a way for cardholders to retrieve money lost to fraudsters, identity thieves, and other unauthorized purchasers. As a bonus, the threat of chargebacks also incentivized merchants to stick to fair, above-board practices. So there are legitimate reasons for requesting a chargeback. When used correctly, chargebacks are a critical layer of protection between consumers and threats like identity theft. Unfortunately, many consumers don’t use the process correctly. In fact, there are numerous occasions where cardholders may not be aware they are filing a chargeback at all.
The Importance of Chargeback Protection for Merchants
If your industry or business encounters a higher rate of credit charge chargebacks than most other retailers, the acquiring banks that accept and approve credit card payments will either freeze the merchant account that collects the funds from credit card payments or sharply increase the credit card processing rate for that merchant. There are many reasons a consumer may file a return item chargeback. There are over 50 chargeback reason codes between all the major card brands, and while the list is too long to cover them all here, we will address what exactly a chargeback is, the most commonly abused reasons for a credit card chargeback dispute transaction, chargeback prevention services, and how to fight credit card chargebacks.
While you do not need to be a chargeback know-it-all, comprehending the challenge you’re up against can make it possible to improve your operational measures to help you stop chargebacks in their tracks. Stay ahead of credit card chargebacks with high risk merchant accounts that offer chargeback protection for merchants – but first and foremost, the most important tip we have (especially for those business owners in high risk verticals) is to be sure that your company chooses a secure high risk merchant account to deflect many of the stressors that come with credit card chargebacks and for all your payment processing needs.
What are the Most Common Reasons a Business might Need High Risk Merchant Accounts?
How to avoid this in the future: When it comes to fraud due to credit card chargebacks there are many tools available to merchants to alleviate fraud in the online payments world.
- iSpy Fraud Tool: iSpyFraud is a rules-based fraud prevention tool that merchants can use to screen suspicious transaction activity, helping merchants to stay one step ahead of credit card chargeback fraud.
- Verified by Visa/MC Secure Code: Both Visa and MasterCard have programs that allow you to add an additional layer of security to your sales, and potentially avoid a return item credit card chargeback fee.
- 3D Secure: 3D Secure was created by Visa and MasterCard to add an additional layer of security for Card Not Present (CNP) and high risk merchants.
- Gateway Tools: Utilize the standard gateway tools at your disposal to avoid an unnecessary return item chargeback. Be sure you turn on and make use of AVS (Address Verification Services) and CVV (Card Verification Value).
Processes to implement preventing this: In high risk payment processing, your payment descriptor is the merchant name, as well as other identifying details that appear on the customer’s statement when they make a purchase from you. If the customer doesn’t recognize the name that appears on their statement, it is unlikely they will know what the charge was for. To avoid disputed transactions because of credit card chargebacks, you need to be sure your descriptor reflects what the consumer will recognize.
What to look for: You may run into a system error that can lead to the customer’s credit card being charged twice, which risks the potential of a return item chargeback fee. Occasionally, a customer accidentally pressed the “Check Out” button twice, leading to a duplicate charge. If you happen to see a duplicate order, assume that it was a mistake and contact the customer to confirm. If there is a manual process, the person processing the credit card might make an error. Avoid doing manual processing of orders if possible, and be sure to state the time limit for credit card chargebacks somewhere within your return policy guidelines.
Here is what you should do: You can’t make everyone happy, and that goes double for consumers. Make sure you have a responsive customer service team with short hold times. Only one thing infuriates a consumer more than long wait times; speaking with a customer service rep for a company with too strict of a return policy. You need guidelines for how to fight credit card chargebacks, and make sure your return policy is clearly located on your website in a way that is fair for both parties involved.
The resolution: Start with clear expectations and a visible shipping policy on your website and keep your customers informed by emailing order status updates. Sometimes there are circumstances out of your control, especially for those with a mobile merchant account, that can cause a delay in shipping. Issues in this area can range from unexpected weather causing shipping delays, to an unexpected turn in sales causing you to run out of product – regardless, for a return item chargeback to be avoided, advise the customer of the delay and give them the option to cancel.
The solution: If a customer requests cancellation of a recurring transaction that is billed periodically (monthly, quarterly, annually), always respond to the request and cancel the transaction immediately – or as specified by the customer. If you don’t want to fall subject to credit card chargebacks, advise the customer in writing that the service, subscription, or membership has been canceled and be sure to state the effective date of cancellation. Failure to respond to customer cancellation requests almost always leads to a chargeback.
How to dodge this problem: Always make refunds in a timely manner and do so to the same credit or debit card the consumer paid with. Failure of timely refunds can result in a return item chargeback or basic credit card chargebacks. Make sure you communicate to your customer how long it will take before they see the refund. This information may seem basic to some people, but when it comes to the integrity of how your business is conducted and your consumer retention, it’s always best to cross your T’s and dot your I’s. Knowledge is power, which is why knowing how to fight credit card chargebacks in regards to the chargeback time limit and how to avoid this type of situation all together can be a powerful resource. Be sure that your company chooses a secure high risk merchant account to deflect many of these stressors and for all your payment processing needs. If you’re unsure whether or not your company has been categorized as a high risk merchant, be sure to read more here for a complete list of businesses in this arena and to answer the question: What is a High Risk Merchant Account?
What is a Refund Versus a Dispute Transaction Chargeback?
To the casual observer, the difference between a chargeback and a merchant-initiated refund might seem trivial. The same dollar amount comes out of the merchant’s account, either way, so is one really worse than the other? Of course, any merchant who’s had to deal with chargebacks firsthand knows the answer to this.
Aside from the fact that chargebacks often come with additional fees, banks and card networks hold chargebacks against merchants. Too many chargebacks can mean the imposition of restrictions and possibly even the loss of your merchant account. A voluntary refund, however, is strictly a matter between the merchant and the customer. When you’ve got a customer, who has a legitimate problem with a purchase they’ve made, it’s always better to give them a refund rather than leave them with no alternative but to file a chargeback.
How Can a Refund Policy Prevent Credit Card Chargebacks?
Believe it or not, a strict return policy can actually hurt your business more than a more flexible policy. Dissatisfied customers or customers disputing charges due to fraud will not accept a no from you if they are motivated and angry enough to appeal to their credit card provider for a return on their funds. When the banks need to refund your customers instead of you, you end up paying more in higher processing rates or losing business because the bank froze your merchant account. If you are looking for more flexible refund/return solutions here are a few things you can do:
- Set up a Solid Product Page. When listing your products, make sure descriptions are accurate and that you have clear and accurate imagery depicting the product at all angles. Being thorough with your product presentation will prevent users from disputing a charge due to misrepresentation, counterfeit merchandise, or not as described/defective merchandise claims, which in turn prevents a filed chargeback.
- No Strings Attached Cancellations. If a customer has to cancel their recurring payment, or their one-time order, make sure they have a clear idea of how to do that on your site. If you tack on terms like early cancellation fees, this will only cause the customer to circumvent your process and go directly to their credit card provider and chargeback the purchase.
- Offer Return Options. No one wants to lose a sale outright, and your customers may be willing to give your other offerings a chance instead of demanding their money back. You could offer to accept a return for store credit or for exchange for a similarly valued product. The idea is to keep that sale on your books and avoid credit card chargebacks, in whatever way possible, and to impart satisfaction and trust on to your customers.
- Use Plain and Simple Language. Your customers are less likely to file credit card chargebacks if they can clearly understand your return/refund policy. If you accept returns, make sure you indicate a time period when they will be accepted. If they will only receive a store credit for their return, make sure that is clear in the policy. Also, outline any additional potential charges incurred by the customer. If they need to send it back, who will cover shipping fees? Will there be a restocking charge to accept the product back in inventory? Use the KISS principle: Keep It Simple, Sweetie!
- Define “All Sales Final” Situations. If you are unable to accept goods back due to seasonality or other extraneous circumstances, you need to indicate that on your product page. If the customer knows that the sale is final, they will consider the purchase more and be less likely to want to return the product.
Why Seek Chargeback Prevention Services with Tritium Pay?
The truth is, credit card chargebacks occur for a variety of reasons, but one thing is for certain: credit card chargebacks account for revenue loss. While you do not need to be a chargeback know-it-all, comprehending the challenge you’re up against can make it possible to improve your operational measures and chargeback protection for merchants to help you stop credit card chargebacks dead in their tracks. We’ve got you covered on all the ins and outs of payment processing question, concerns, and merchant accounts – but we also care about the longevity of your merchant account and the overall success of your business – which is why keeping a finger on the credit card chargebacks pulse is imperative. Implement some of these tips and you’re sure to see a reduction in credit card chargebacks. That said if you found yourself in a situation where you are paying high rates for credit card processing, or a payment processor has frozen your high risk merchant account and are holding funds outright, get in touch with us about high risk payment processing solutions. We have relationships with the most relevant acquiring banks and can help negotiate the best rates for your high risk merchant account
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