Without a doubt, chargebacks are a thorn in the side of every merchant. They can lead to significant financial losses, making it essential to take proactive steps to prevent them and protect your revenue.
Fortunately, with the right strategies, merchants can safeguard their businesses and maintain a healthy bottom line.
This article provides a comprehensive list of the most common mistakes merchants should avoid when fighting chargebacks and offers practical solutions that you can implement immediately.
What Is a Chargeback?
Before we dive in, let’s start with a quick refresher about chargebacks. In brief, a chargeback is a form of customer protection. It’s a guarantee that when a transaction is recognized as fraudulent, the bank will refund the disputed transaction value to the cardholder.
Even though errors caused by merchants are not the only reason for chargebacks, they constitute a significant part of disputes.
Therefore, it’s advisable to learn what merchants can do when a customer disputes a charge and what mistakes to avoid when fighting chargebacks.
So, what are the most frequent missteps merchants take?
Mistake #1: Incorrect Reason Codes
Even though chargebacks are a means of customer protection, merchants have the right to fight every dispute. They should do it whenever they can prove the disputed transaction was legitimate.
Yet, to increase the chances of winning the dispute, merchants must be aware of chargeback reason codes (also known as dispute codes).
Why is it so important?
The purpose of the reason code is to categorize the chargeback, identify the customer’s reason for disputing it, and determine the specific evidence that a merchant must provide if they want to challenge the customer’s dispute.
Understanding reason codes is essential when fighting chargebacks because each code has evidence-collection requirements. Merchants who understand reason codes can better prepare for dealing with chargebacks.
Good Practice for Merchants:
Keep a list of required compelling evidence close at hand to increase your chances of winning a dispute.
Mistake #2: Superficial Evidence Review
To increase your chances of a successful outcome, it’s obligatory for merchants to meticulously scrutinize all proof before presenting them as evidence, act promptly, and not postpone the submission of documentation.
When preparing to dispute chargebacks, merchants must track the customer’s activity, analyze their behavior, and keep logs in the system to avoid unwanted surprises. They should also make sure that everything is adequately documented.
You should review documents as soon as a chargeback is initiated and promptly gather and submit all the necessary evidence.
It’s also wise to double-check all provided proof before sending the evidence and try to consolidate the documentation into a single PDF file to simplify the process.
Good Practice for Merchants:
Double-check all the evidence. Make it clear and structured to increase the chances of success in fighting chargebacks.
Mistake #3: Doing Nothing With the Dispute
While fighting every chargeback claim might not be the best move, ignoring chargeback disputes altogether is not recommended either.
It is vital to scrutinize each chargeback to determine which ones are disputable. Pursuing the chargeback representment process can result in substantial savings in some situations, making it worthwhile.
Doing nothing will result in money loss in every single case. By conducting thorough analyses of every claim, we can identify which ones are worth fighting and take the necessary steps to recover the losses.
Although fraudulent chargebacks are extremely difficult for the merchant to win, our representment process greatly increases the chances.
Watch the video below, and let us walk you through the process and show you how to be better prepared when chargebacks occur.
Good Practice for Merchants:
Always stay vigilant with your business and take proactive steps to recover as much of your money as possible.
Mistake #4: Merchant & Customer Communication Issues
Although chargebacks are supposed to protect the customer, cardholders sometimes overuse them. They may file chargebacks when they can’t recognize a purchase, feel misled by the product description, or need help finding the return policy on the merchant’s website.
Even though the issues listed above may appear vastly different, they all have one common root cause: communication breakdowns on the merchant’s end — the effect of which can damage the business and result in loss of revenue and the merchant’s frustration.
Preventing these issues may seem daunting, but clear and timely communication is the key.
Merchants can significantly lower the incidence of chargebacks by keeping their customers updated on their purchase status, making their account information and payment options easily accessible, offering smooth payment processes, and taking care of details such as transaction descriptors or return policies.
Top-notch customer service is another powerful way of mitigating chargebacks. Customers often try to contact the merchant before filing a chargeback. If their issues are quickly addressed, there’s a chance to avoid an unnecessary chargeback.
Therefore, merchants must stay alert to address such scenarios effectively since being proactive is the key to safeguarding their reputation and ensuring customer satisfaction.
In certain instances, it’s worth considering giving a refund instead of dealing with a future chargeback.
Good Practice for Merchants:
Stay in touch with your customers throughout the entire sales process. Keep contact information visible on your website and checkout page.
Mistake #5: Saving on Fraud Prevention Solutions
Investing in a fraud prevention solution allows merchants to focus on their core business responsibilities, free their chargeback team from manual analysis, and, most importantly, safeguard their business and customers.
Prevention is always better than a cure. It pays off to take the time to explore and choose the perfect fraud solution so you can minimize potential chargebacks.
The great thing is that merchants don’t need to break the bank to ensure their business’s security. Instead, they can choose a reliable payment processor offering anti-fraud tools and a well-designed chargeback process.
With the right resources, process, and technology partner, fighting chargebacks could be a smooth ride.
Good Practice for Merchants:
Choose a security-driven payment provider offering a range of best-in-class anti-fraud tools that enable you to eliminate the threat and possible losses.
Mistake #6: Inaccurate Transaction Monitoring
Maintaining comprehensive records of all transactions is crucial when fighting chargebacks. Merchants must collect customer and purchase information and screenshots or receipts of the item purchased. That might be further evidence that the customer bought or received their item.
Customer communication should occur via email, along with all relevant receipts, notices, and paperwork.
When facing a chargeback dispute, merchants might be required to provide a signed delivery slip, CVV verification, and emails exchanged between them and the cardholder.
Establishing a well-organized filing system to store this information for effortless retrieval is advisable.
Good Practice for Merchants:
Hope for the best, and prepare for the worst. Collect any information that may help you prove the chargeback isn’t legitimate.
Mistake #7: Metrics Monitoring Negligence
Monitoring chargeback metrics is critical to achieving success on a larger scale. Not only does it affect the business results, but it also incurs higher fees, penalties, or labeling as a high-risk business.
Any abnormalities in the fraud rate should immediately raise a red flag and alert merchants since it likely resulted directly from fraudulent activity on the website.
When the fraud rate suddenly grows, merchants may suspect it’s a consequence of the customers’ account takeover attack, stolen card testing, or any other type of cyberattack.
Therefore, card companies strongly encourage businesses to monitor their fraud rate closely and take necessary measures to keep it under control. Otherwise, they will face the fee.
Apart from the fraud rate, merchants should control their win/loss rates to be proactive and prevent severe business consequences.
Good Practice for Merchants:
Stay sharp with your business intelligence, know your metrics, and be ready to take necessary action before the real problem appears.
Mistake #8: Ignoring Red Flags
One of the biggest mistakes merchants can make is ignoring or disregarding so-called red flags.
Staying alert and aware of any warning signs indicating fraudulent activity, such as repeated chargebacks or suspicious transactions, is vital.
It is imperative to meticulously track all payments, maintain detailed transaction records, and consistently monitor any suspicious activity or trends related to chargeback fraud.
Merchants must take proactive steps to review payment analytics regularly to identify patterns that may indicate an increase in dispute frequency or commonly reported reasons and stay up-to-date on all chargeback reason codes.
By identifying red flags and chargeback fraud patterns early on, businesses can adjust their fraud prevention tactics and solutions accordingly to mitigate the risk of future occurrences effectively.
Good Practice for Merchants:
Stay alert and investigate every fraudulent activity, as it helps to identify and eliminate eventual shortcomings in the anti-fraud system.
Take a Proactive Approach to Fighting Chargebacks
Fighting chargebacks is a highly challenging and costly procedure that can severely impact the business. However, giving up on fighting chargebacks is never a wise choice.
While it’s not easy to win a dispute, if the merchant doesn’t try, they’ll never win.
For this reason, merchants should implement effective tactics, utilize suitable software, cooperate with top-class, security-oriented payment processors, and avoid the mistakes listed above.
Though it’s impossible to alleviate this burden entirely, the chances of winning a dispute will fire up.