Chargebacks are a major pain point for business owners, and will only get worse. Especially with fraud skyrocketing at unprecedented rates, thanks 2020.
It is much easier to add steps to prevent chargebacks than it is to fight one.
What Is a Chargeback?
This happens when a customer disputes the legitimacy of a transaction, or when an item is returned. Charges are disputed for many reasons: if an item wasn’t received, duplicate charges, technical issues, or a cardholder’s information was compromised.
Types Of Chargebacks
When an unauthorized purchase is made with a credit card it is considered true fraud. Once the customer realizes they were a victim of fraud they will call the bank, file a dispute, and claim the charge was made without their knowledge or permission. The bank will reverse the charges and deposit the funds back into the customers’ accounts. (Great for the customer, not so great for you).
Merchant error charges are directly a fault of your business. It could have happened because card information was keyed incorrectly, the transaction went through twice, or you failed to deliver the product.
Other errors could be caused by system failures or issues within your business. Processes such as bad customer service, unwanted recurring payments, authorization errors, or fulfillment issues can exacerbate the problems.
Customers could file chargebacks related to recurring payments if you are billing them regularly without their knowledge or consent. Hopefully, you canceled the recurring charges when they called in the first time and avoid this altogether.
Authorization errors can happen when a merchant decides to override a declined transaction, especially if this override is done with a voice authorization. It can also be a result of multiple deposits made to complete a single authorization.
Having solid steps for inventory management, shipping processes, and a good customer service department will be your biggest asset. It is really important to be quick about refunds so customers will go to you with complaints rather than going straight to the bank. Read this blog to check if authorization fraud could be a potential issue for you as well.
Friendly Fraud Chargebacks
Friendly fraud happens when a customer makes a purchase with their own credit card and then disputes it directly with their bank. This happens frequently within the eCommerce space and the costs add up quickly. A common scam to watch for is when a product was delivered but customer claims they never received it, or they sent it in for a refund and didn’t get their money back.
Long story short is the customer knows exactly what they are doing and will file the chargeback with their bank for the direct refund. Be prepared to deal with a hefty amount of fraud if you play in the e-commerce world because your transactions are 100% card-not-present purchases.
Chargebacks + Merchants
Chargebacks add to the expenses of a merchant’s retail operations because they end up eating the costs for chargebacks. If a business starts trending with multiple chargebacks they are at risk of penalties, fines, loss of their merchant account. Unfortunately, if you have too many instances you are risking being placed on the MATCH list. The MATCH list identifies merchants by the number of disputes and chargebacks they have that show they are high risk.
Steps Of Action For A Dispute
If you happen to find yourself in a dispute, we recommend talking with all team members before reaching out to the customer. Find out the steps staff members took to resolve the issue. Reach out to the customer once you have a grasp of the situation.
- Find out what they are disputing, take notes on the information the customer gives you.
- Contact the processing bank
- Be quick and organized with your facts and documentation.
- Keep open communication.
- Provide your documentation to the bank, such as photos of completion, contracts, work orders, receipts, etc. The more documentation you have, the easier it is to prove it belongs to you.
Schedule a time with a payment professional for a quick business analysis.