Businesses pass through a lot of hassles to stay profitable and grow. One of those growing threats for online businesses include chargebacks. Imagine an online vendor making a sale and being happy about it. Then, suddenly, they get a message from their payment processor that the customer is disputing the transaction.
This could be well intentioned from the customer in a situation where defective products or services have been supplied. However, in some situations these disputes could have fraudulent intentions.
Chargebacks are a growing threat for online merchants, and must be managed robustly as they can have a massive impact on revenue, damage customer relationships and can have detrimental effects on the business.
As a follow up from our last article titled “Planning for Post-Holiday Sales Chargebacks”, this writeup further explains how chargeback works and how businesses can mitigate losses from chargebacks this holiday season.
A chargeback is initiated by a cardholder’s bank on their behalf when they want to dispute a transaction. Chargeback requests must come within 120 days, however some card payment networks rules may differ from this. Below are some of the main reasons chargebacks are initiated:
- Cardholder does not authorise the transaction
- Cardholders card has been stolen and was used fraudulently
- Cardholder does not recognise the business trading name
- Cardholder was not provided service or goods
- Cardholder has been refused a refund
- Cardholder does not recall transaction
- Cardholder purchased transaction accidently
- Cardholder is trying to obtain goods/service for free (1st party fraud)
Banks also reserve the right to initiate chargebacks without approval of card holders in the event of fraud and error. Chargebacks due to cards not present transactions are a massive concern in the payments industry. Therefore, we’d like to highlight the best mitigation methods for this type of chargeback.
Best practices for chargebacks due to ‘card not present’ transactions:
Chargebacks due to’ card not present’ transactions occur during online transactions, especially when the physical card is not swiped or touched on the Point of Sale machine to process the transaction. This happens in situations where the business processes a card without the card being physically present. Examples include, online orders, buy online; pick up in store, and phone order etc.
Below are key areas to prioritise for businesses.
- Ensure fraud tools are implemented to detect suspicious transactions proactively.
- Always attempt to process fully authenticated transactions (3D secure)
- Ensure your billing statement text is easily recognizable to your customers. While completing the sign up/onboarding process, ensure the doing business as field names are recognisable to all your customers
- Have a clear returns policy.
- Upon request, refund transaction as quickly as possible to avoid cardholder reporting it to their bank.
- Display your business information clearly on websites and emails to ensure customers can easily contact you.
- Keep all receipts upon payment to remind your customers what they paid for. This may also be useful when required to defend chargebacks
Best practices for chargebacks due to recurring payments:
Sometimes, customers leave their card details on the retailer’s website to ensure steady supply of a product. Perhaps a customer wants to send a gift to a certain special one every 14th of every month, and then the customer signs up for that service with a gift shop. Sometimes, customers forget that they have signed up for this type of payment and go ahead to dispute it. Other times, customers request for the cancellation of subscription and it’s not effected fast enough till a debit occurs.
Below are some tips on how to prevent chargebacks related to recurring payments:
- The merchant’s terms of service should be clear, concise and readily available even before the initial transaction.
- Merchants should promptly cancel recurring transactions when requested
- Merchants should prepare to respond quickly to inquiries and be proactive with initiating communications as consumer expectations can change
- Provide confirmation in writing to the customer that their payment instructions have been cancelled by including the effective date of the cancellation
- Customer cancellations should be as simple and pain-free as possible. If subscribers find this as a challenge, they will bypass your policies by filing a chargeback
Merchants should remind customers of an upcoming payment for the first recurrence or if a long period has passed since the last payment. A customer who was not sent a reminder or was unaware that they would be making a recurring payment is far more likely to raise a chargeback and win it. You don’t want to soil your business reputation with your payment provider because of your high rate of chargebacks. Here’s your chance to do something different to improve the health of your business.
Happy Holidays and stay safe!