Chargebacks aren’t good for any business but there are ways you can reduce chargebacks. Understanding the chargeback process and having a plan in the case where it happens will help reduce the amount of chargebacks your business experiences.
What are chargebacks?
Chargebacks were created to protect customers and cardholders. If you noticed a transaction that you don’t remember making or you were given a faulty item, you can dispute it with your credit or debit card provider to try and get a refund. However, chargebacks don’t protect the businesses experiencing them, as unfortunately there are cases of chargeback fraud attempts.
Typically it is either customers that are not satisfied or it is a case of friendly fraud. Chargebacks911 estimates that out of the $100 billion in credit card fraud, $4 billion of that was caused by friendly fraud. So it’s happening more than you think. Not to mention that each time a business owner is hit with a chargeback they are subjected to a fee. This fee is non-refundable even if the customer reverses the chargeback or you win the claim. This is why Penni wants to give our customers the best advice on methods that will help reduce chargebacks.
What are the types of chargebacks?
True fraud
True fraud is the reason that chargebacks exists and is when the cardholder falls victim to a scammer or identify thief and their card is used without their authorization. Chargebacks allow cardholders to get their money back.
Friendly fraud
Friendly fraud is when customers report valid charges as fraudulent so they can get a refund even though there was no issue with the product or service. This is a chargeback done deliberately with malicious or criminal intent. According to Chargeback Gurus, friendly fraud makes up 60 to 80% of chargebacks.
Merchant error
Merchant errors happen and these chargebacks are often caused by shipping the wrong item or the item being damaged upon arrival. A chargeback will likely occur if the cardholder does not receive any help or explanation from the merchant. But ideally, the merchant should take action by ensuring customer satisfaction and preventing a chargeback and just refund their money.
The chargeback process
There are four moving parts within the chargeback process: the cardholder, the issuer, the acquirer and the merchant. Once the cardholder files a chargeback, the issuer reviews and assigns the reason code to the case. The reason code just lets the merchant know why the cardholder wants a chargeback. With each code, there are certain standards of proof and evidence required and codes vary depending on the card. The issuer will investigate and request evidence form the merchant. The merchant then has approximately 10 days to write a rebuttal provide evidence of the transaction.
Evidence may include:
- Copy of the valid transaction receipt - keeping your transactions organized will help you recover the receipt quickly
- Confirmation of delivery - it is important to keep hold of shipping numbers, track shipment if possible, and work with a trusted shipping service
- Proof of resolved complaint - this can be evidence of communication between the merchant and customer
The acquirer reviews the chargeback as does the merchant. The acquire will re-present the chargeback on the merchant’s behalf and then the issuer reviews the evidence and makes a final decision. If the case is approved, they will re-submit the transaction to the customer. The investigation of the claim can take between four weeks and 90 days, and that’s just the investigation. You may have to wait months to get your money back.
Should you fight a chargeback claim?
Now that you know the chargeback process, you may be wondering, is it worth fighting a chargeback dispute as a merchant?
If you know that the chargeback is illegitimate, it’s important that as a business you do fight the charge. As you know, you'll need to be able to gather evidence to support its illegitimacy in order to recover your losses, and on top of providing evidence, you will need to submit a rebuttal letter to argue you case. It’s crucial that you act quickly against a chargeback claim as your window is quite small to provide your evidence.
Writing a rebuttal letter can take different forms. Depending on your payment provider you may have to write a letter or fill out a form. You will have to outline your case and address the customer’s complaint. It should be clear and concise, as a good rebuttal letter combined with evidence can typically convince the bank you wrongfully experienced a chargeback and they will return your lost revenue.
7 ways you can reduce chargebacks for your business
1. Work with a reliable payment provider
Work with a reliable card payment terminal provider, a company that you trust and doesn’t take a huge payout through transaction and other various fees. Your bank card terminal should come with anti-fraud tools and machine learning, such as the devices that Penni provides. Some bank card terminals have AI solutions and according to Chargebacks911, companies that use third-party chargeback management solutions are able to reduce their chargebacks by 19%. Being able to put trust in your point of sale system in Canada can make such a difference in the long-run as chargebacks are unfortunately almost inevitable.
2. Provide accessible customer service
There’s nothing more frustrating to a customer when the merchant is out of reach and is not responding to their emails. We all know that you have to put the customer first, so make sure you are doing just that. Supply your customers with an email address that they can contact you at outside of store hours, or implement a forum onto your businesses’ website and give them an average response time. Deal with customer issues promptly or at the very least let them know the status of their inquiry if you can’t quite answer their question just yet. They will be less likely to file a chargeback if they are in open communication with you.
3. Provide a clear return policy
Manage your customer’s expectations by being upfront about your businesses’ return policy. Make it clear what they can and cannot return and be as accommodating as possible. Issue returns quickly and efficiently to keep your customers satisfied. Being proactive regarding your company’s return policy will mitigate future chargebacks. You may be able to solve a chargeback case by offering a return, and returns can be less expensive and time consuming than fighting a chargeback.
4. Train staff on protocols and best practices
With the influx of chargebacks, it’s crucial that all your employees are on board with the protocols and best practices when a chargeback is issued. Your employees should all be well versed with your wireless credit card terminal so they are aware of any possible suspicious activity. You should implement on-going training to teach your team to recognize suspicious transactions and to verify signatures. This way your team can help you collect any evidence in the case of a chargeback.
5. Analyze your chargeback data
You can calculate a chargeback ratio by dividing your total number of chargebacks per month by the number of monthly transactions. If you have a high chargeback ratio, over 0.9% and it doesn’t decrease, this can harm your business in the long run. This can classify you as a high-risk merchant which can lead to paying higher processing fees. Too many chargebacks can get your account frozen or even terminated.
Your POS system in Canada, plays a large role in the data analysis. You can use POS reporting to learn more about your transaction data. You can investigate your trends and look for any fraudulent indicators from your customers or your employees. The Penni provided POS software has advanced features that offers fraud prevention and monitoring tools.
6. Have a transparent shipping and billing process
It’s important to be clear about your shipping and billing process, to ensure there is no confusion between the merchant and the customer. Try offering enhanced shipment options, shipping insurance, provide a tracking, and use reputable shippers.
Pro chargeback tip: delay shipping high-risk orders by 24 to 48 hours.
7. Be proactive - have a chargeback plan
Implement a strategy or a plan for when a chargeback occurs. Perhaps even document the process so you can refer back to it, if it does happen again. But hopefully with Penni’s comprehensive explanation of chargebacks and ways to prevent chargebacks, you won’t have to!
Chargebacks are becoming increasingly more frequent, especially with the presence of e-commerce. There are ways to prevent chargebacks by following best practices and protocols, keeping up with your records and doing frequent transaction analysis, and being prepared to push back against a chargeback claim.
Our first suggested step is to browse POS installation companies and find a company you can trust who provide a reliable debit card machine rental. Here at Penni we pride ourselves in being fully transparent with our merchants and providing them the best payment processing service with added chargeback protection features.
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