Reduce Chargebacks and Minimize Headaches
There are two components of an effective chargeback management strategy. First, merchants must aim to reduce chargebacks. Next, they must dispute chargebacks that slip through the protective barrier.
Merchant Opinions Regarding Chargeback Management
Many merchants assume chargebacks are simply a cost of doing business. Valuable resources are devoted to neither prevention nor representment.
47% of merchants believe fraud is inevitable
20% of merchants believe it costs too much to control fraud
14% of merchants never contest chargebacks
However, if merchants take the appropriate actions, it’s possible to reduce chargebacks by as much as 40%. That means there is a lot of unnecessary revenue loss for the average merchant.
The Cost of Chargebacks
Unfortunately, turning a blind eye to chargeback management is detrimental to both the business’s bottom line and the chance for long-term growth. If merchants aren’t dedicated to reducing chargebacks, costs and penalties will quickly add up.
What happens if the merchant is unable to reduce chargebacks?
Various fees accompany each chargeback. These fees are meant to compensate various people involved in the chargeback process and act as a deterrent to merchants who are indifferent to chargeback rates. Fees can range from $20 to $100 for each chargeback. On average, a merchant pays $3.08 per dollar of fraud. That means a $100 chargeback costs the merchant at least $308.
Chargebacks forcibly remove funds from the merchant’s account. Unless the merchant’s representment case is successful, that revenue is lost forever. The average merchant suffers 133 fraud-related chargebacks per month, averaging $114 each. That’s $15,162 in lost revenue per month
The merchant also loses the cost of the goods sold. Merchandise associated with a chargeback is rarely returned to the merchant, so the merchant forfeits the money spent on the item and all future profitability.
The cost of processing the transaction (interchange fee, etc.) is also wasted. If the merchandise was shipped but didn’t arrive at its final destination, the chargeback amount will also include the shipping and handling.
If the merchant chooses to dispute the chargeback, there will also be resources wasted during the representment process. Disputing a chargeback is an expensive, time-consuming, labor-intensive process. Those valuable resources should be used to grow the business, not fix problems of the past.
Excessive chargebacks also increase the odds of a terminated merchant account.
A terminated merchant account leads to placement on the MATCH list. Being MATCHed means the merchant is not allowed to obtain another traditional merchant account and is forced to use high risk payment processing. These accounts come with extra fees and a revenue-stealing account reserve.
The Most Important Step to Reducing Chargebacks
The very first thing a merchant must do to reduce chargebacks is determine the actual chargeback triggers. What is causing the chargebacks?
Most merchants rely on the chargeback reason code to determine the transaction dispute cause. Unfortunately, because of friendly fraud, reason codes aren’t as informative as merchants assume.
For example, the cardholder claimed a transaction was unauthorized. In reality, the consumer was actually suffering from buyer’s remorse. The bank issued a chargeback with a fraud-related reason code, and the merchant accepted this reasoning. In light of the information, the merchant beefed up fraud prevention tactics. Unfortunately, those extra fraud detection efforts were unwarranted because the transaction was authorized and friendly fraud was the real culprit.
Unless merchants are able to determine the true cause of chargebacks, all efforts to reduce chargebacks will be unsuccessful.
Unless you can identify the true cause of chargebacks, all prevention efforts will be useless.
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Chargebacks911™ uses proprietary technology called Intelligent Source Detection™. We are able to analyze a transaction dispute and determine the real reason behind the reason code. If you’d like more information about Intelligent Source Detection™, let us know.
Despite the numerous reason codes used by card networks to categorize a chargeback, there are really only three sources of chargebacks:
Criminal Fraud: Sometimes known as credit card fraud, criminals gain access to credit card information and make unauthorized transactions. Despite more than half of all chargebacks being attributed to credit card fraud, less than 20% of chargebacks are caused by criminals.
Merchant Error: Whether caused by faulty business practices, unwise policies, or processing errors, merchant oversight can unknowingly cause chargebacks. Fortunately, Chargebacks911™ offers a 106-point inspection of merchant policies and practices to uncover all potential chargeback triggers. Let us know if you’d like help reducing chargebacks by rectifying merchant error.
Friendly Fraud: Sometimes known as chargeback fraud, this consumer behavior is synonymous with cyber shoplifting. Savvy shoppers detect and exploit loopholes in the chargeback process, using banks to secure an undeserved, no-hassle refund.
Once merchants have detected the true cause of transaction disputes, they can begin implementing prevention practices to stop the revenue loss.
Best DIY Methods to Reduce Chargebacks
There are various chargeback prevention methods merchants can implement themselves. These efforts to reduce chargebacks will address the ‘low hanging fruit’ – the easy-to-prevent transaction disputes that are rectifiable without professional assistance.
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Some of the best DIY tips to reduce chargebacks include:
Use fraud detection tools like AVS, card security codes, and 3D secure.
Improve customer service by sharing essential contact information, replace IVR phone systems with human-to-human engagements, reply to emails promptly, and regularly check social media accounts.
Adhere to business best practices outline by card networks and acquirers.
Reduce friction associated with recurring payments by sharing the terms of service, offering a “no strings attached” cancellation policy, promptly fulfilling cancellation requests, and communicating rate changes.
Ensure customers know when products will be shipped and when they should be delivered. Use delivery confirmation for large purchases.
Write accurate and detailed product descriptions.
Watch for potential indicators of fraud.
Use easy-to-recognize billing descriptors.
There are various other chargeback prevention tactics that a professional can help you implement. If you’d like to learn more about the strategies Chargebacks911™ uses to reduce chargebacks, contact us today.
Reducing Chargebacks is Only Half the Battle
While preventing chargebacks is a necessary step in the effort to reduce revenue loss, it isn’t the only chargeback management task merchants need to attend to. Representment is just as important.
If you’d like help implementing a more detailed chargeback prevention strategy, one that does more than just address the ‘low hanging fruit,’ let us know. Chargebacks911™ also offers the industry’s most effective representment services. Once you’ve gotten a handle on reducing chargebacks, let us help you recover revenue lost to transaction disputes that slipped through your protective barrier.
Prevent Chargebacks. Fight Fraud. Recover Profits.
Find out how much more you can earn by preventing and disputing chargebacks.
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