Credit card chargebacks are a serious problem for merchants. Card networks are set up to make merchants fully liable for chargebacks that occur due to fraud (transactions made with stolen credit cards). For cases of “friendly fraud” (such as a cardholder initiating a chargeback to intentionally get a product without paying) or for chargebacks arising from clerical errors or quality disputes, the merchant is also liable unless it formally disputes the chargeback.
Chargebacks, therefore, can be extremely costly to merchants, but in addition, a high chargeback rate can result in the bank placing restrictions on the merchant account or closing it altogether. If a merchant account is closed and added to the MATCH list, obtaining a new one is very difficult, a problem serious enough to potentially drive a merchant out of business.
How to avoid chargebacks
We specialize in high risk merchant accounts and routinely work with our clients to implement strategies for reducing chargebacks. Among the most common and effective avenues of defense:
- Make sure your processor is PCI-compliant (to mitigate fraud).
- Make sure your internal systems for handling and storing credit card data are secure and PCI-compliant as well.
- Use AVS and CVV verification for CNP (card not present) transactions.
- Make sure your payment descriptor (the name of your company that appears on the customer’s cardholder statement) is clear and consistent with your store brand. Many chargebacks are initiated because the cardholder doesn’t recognize the descriptor.
- For the same reason as above, make sure your product/service descriptions are clear on the cardholder statement.
- Employ well-trained, attentive customer service personnel to resolve customer complaints before a chargeback is initiated.
- Train in-store employees to watch for the warning signs of a fraudulent transaction. Signs include attempts to place rush orders just as the store is closing, a credit card held in a hand rather than pulled from a wallet or purse, etc.
- Document transactions where fraud is suspected or where something else appears wrong.
- Make return and refund policies fair and clear, and visible on your website and in-store. When customers are unsure of these policies, they initiate chargebacks more quickly.
- Resolve quality disputes quickly. If a refund is due, process it as soon as possible. Letting quality issues linger inspires frustrated customers to take drastic actions.
- Keep detailed records of all credit card transactions.
If a dispute is underway, keep detailed and thorough records of what happened. If a chargeback is filed, you will need specific information to win the dispute.
Resolving chargebacks follows a standard process. After the initial filing comes an initial review by the issuing bank, followed by an investigation. If the chargeback is deemed valid, the customer is credited by the bank with funds from the merchant’s bank account. The merchant’s processor then reviews the chargeback evidence and presents evidence to have it reversed. At this point the issuing bank reviews all the evidence and makes a decision.
An ounce of prevention is worth a pound of cure, so implementing the 12 strategies listed in the section above is the best way to fight chargebacks. Most of these strategies help reduce the number of chargebacks initiated in the first place, and having excellent, thorough records is necessary to prevail in a dispute once a chargeback has been initiated.
Even if you have a good chargeback mitigation plan in place, think carefully before challenging a chargeback. A dispute will probably result in additional fees from your processor, and banks strongly favor cardholders over merchants in the settlement of disputes. In many cases, letting the chargeback stand is more prudent and cost-effective.
If you are unsure how to handle chargebacks, or believe the time is right to implement better defenses against chargebacks, please contact us now. We are very experienced in dealing with these issues and will assist in making your payment processing solution less vulnerable to chargebacks of all kinds.