Why do Chargebacks Occur and How to Avoid Them?
While chargebacks are a normal phenomenon in the business world, there are instances when chargebacks are unwarranted and can bog down your business. This is why it’s important to know what a chargeback is and how to avoid chargebacks altogether or at least reduce them in order not to negatively impact your business. This article will give you vast information regarding these questions.
What is a Chargeback?
Chargebacks in today’s eСommerce business are a common thing. Chargeback allows the buyer the opportunity to get their money back in case of fraud on the part of the online store. Fraud can occur when goods or services are not delivered or don’t look like they were listed on the website.
Therefore, when customers encounter such situations or see a transaction on their card statement that they did not make, they have the right to contact the issuing bank that issued the card to return their money.
The issuing bank, for its part, will ask for more information from the buyer to verify that the transaction was indeed illegal. If the bank decides that the claim is valid, it will investigate it. If the investigation is successful, the money from the merchant’s account will return to the cardholder’s account.
4 Common Reasons for Chargebacks
There are many reasons for chargebacks. We will explore and discuss the most common of them below.
One of the most common reasons is disputes with customers. The buyer can dispute the transaction and ask for a chargeback when the ordered goods were not delivered on the specified date. Another reason for a dispute is when the goods received turned out to be defective or broken and did not match the description. Although customers must go to the merchant for a refund or replacement because of such reasons, they often contact the issuing bank to request that the transaction be canceled.
Another reason that occurs quite often is fraud. In this case, the customer tells the issuing bank that the transaction made by the store is a fraud. The second option is that they tell the bank that someone has illegally used their payment information.
There are cases where fraud transactions are actually legitimate. For example, a customer found a transaction on their statement where he couldn’t recognize the merchant’s name and thought a fraud had been committed.
There are also cases of friendly fraud. This category of chargebacks can include cases where the buyer, instead of asking the seller for a refund, complains to the issuing bank about the chargeback.
Also, buyers can act dishonestly: after receiving the goods, the customer may claim that the package was not delivered, so they request a chargeback. An equally typical case of friendly fraud is when a customer forgets to cancel a paid subscription to regular services and demands a refund to get their money back.
In such chargeback cases, the merchant may make a mistake while processing the payment transaction. For example, the merchant may accept an expired bank card, charge the card in the wrong currency, or accidentally duplicate the transaction.
Authorization problems are also a common occurrence in eCommerce. They occur when a merchant tries to cancel a transaction that has not yet been authorized or is already received using incorrect data.
Best-Practice Recommendations to Minimize or Avoid Chargebacks
Chargebacks have a negative impact on online business. First, it is costly because the merchant has to pay a fee for every chargeback issued, even if it is canceled after investigation. Moreover, a large number of chargebacks can have a negative impact on a company whose merchant accounts can be fined or even shut down.
Therefore, every merchant understands how important it is to reduce the number of chargebacks or use chargeback protection for their business. To protect company profits, merchants often turn to chargeback management strategies from service providers like Chargebackhit. This service provides comprehensive chargeback protection, which includes assistance in preventing fraud transactions, resolving customer complaints, and settling qualified refunds.
However, we offer general advice on minimizing or preventing chargebacks, which many merchants use.
Studies have shown that many chargebacks are the result of merchant error. To avoid most of them, it’s important to hire qualified transaction processing staff and strictly follow card acceptance instructions.
Choose Reliable Systems
Choose reliable POS and payment gateways for your transactions. This will help reduce processing errors.
Have Robust Refund and Return Policies
To keep customers happy with their purchases and have minimal frustration while working with your store, you should have a reliable and simple refund and return policy. That being said, if a customer has contacted you to resolve a dispute directly, it’s better to resolve it sooner to prevent a chargeback.
Protect Against Fraud
Robust fraud protection guarantees you will receive a minimum of refunds related to fraud. You should implement tools such as CVV verification and other security mechanisms for this purpose.