Everything You Need to Successfully Manage Chargebacks
How successful are your chargeback management efforts? This may come as a shock, but your efforts to prevent and dispute chargebacks probably aren’t as successful as they could be.
Why?
Your management style isn’t proactive enough. In all likelihood, your ineffective system is due to ignorance—you simply don’t know all the things you should be doing.
The Two Components of Chargeback Management
There are two key components to an effective chargeback management system: prevention and representment. If you skimp on either task, your entire chargeback management plan will crumble and your business will needlessly lose profits.
Chargeback Prevention
Obviously, the more chargebacks you prevent, the more revenue you’ll retain. Because chargeback prevention is usually the first step for most merchants looking to manage chargebacks, we’ll start there.
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To effectively prevent chargebacks, you’ll need to do these things:
Eliminate merchant error. Don’t make silly mistakes like processing a transaction more than once or entering the wrong transaction amount.
Always make an authorization request. Terminate any transaction that receives a “denied” authorization message and follow the bank’s regulations for any authorization code besides “approved.”
Prevent card-present fraud. Reduce the risk of counterfeit transactions by carefully inspecting the card for signs of alterations and use a Code 10 authorization request if you suspect fraud.
Prevent card-not-present fraud. Use available fraud detection and prevention tools like card security codes, 3D Secure (MasterCard SecureCode, Verified by Visa, etc.) and Address Verification System. Banning fraudsters is easier with blacklists, whitelists, velocity checks and maximum ticket amounts.
Validate transactions that could potentially be fraud. Keep an eye out for potential indicators of fraud. If you suspect fraudulent activity, validate the transaction with the cardholder before proceeding.
Share your contact information. Make it easier to contact your business than it is to contact the bank.
Edit your billing descriptors. Make sure the cardholder recognizes the purchase made with your business. Include your phone number, email address or web address in the billing descriptor.
Check your advertising. Don’t make promises you can’t keep. Adequately describe the product or service.
Communicate effectively and promptly. Answer the phone. Reply to emails. Check social media accounts.
Train your customer service team. There are always ways to improve customer service. Small improvements will drastically reduce chargebacks.
Always follow network regulations. Read the transaction and chargeback processing guidelines for Visa, MasterCard, American Express and Discover. Know what is expected of your business.
Consider your options. Will you accept transactions from any payment card? Weigh the pros and cons. For example, American Express chargebacks are very different from transaction disputes made with other payment cards. Are you aware of your liabilities and risks?
Prepare for the global marketplace. International chargebacks can be hard to dispute, making prevention even more important. Know the risks associated with Dynamic Currency Conversion (chargeback reason code 76).
Issue credit promptly. Let consumers know when they can expect the credit to be applied to their account.
Manage recurring transactions. Make sure the cardholder reads the policies before completing the transaction. Communicate rate changes.
Consider a no-strings-attached contract termination policy. Don’t charge a termination fee for customers who want to discontinue a recurring payment.
Use the delivery process to your advantage. Educate customers about the delivery process: when the item will be shipped, when it should arrive, and any other important details. Don’t charge the card until the items have been shipped. Let customers know about backordered items or delayed deliveries. Use delivery confirmation (especially for big-ticket items).
Understand friendly fraud. Learn how cardholders are committing chargeback fraud and arm yourself against such practices.
Chargeback Representment
Considering the extensive list of essential tasks, this may seem hard to believe, but chargeback prevention is much easier than chargeback representment.
There are three reasons for chargebacks:
Merchant error
Criminal fraud
Friendly fraud
You won’t be able to dispute a chargeback if you legitimately made a mistake. And cardholders shouldn’t be held responsible in cases of criminal fraud.
That means you can only successfully dispute friendly fraud. Unfortunately, these unforeseen attacks are extremely difficult to fight.
To increase your odds of success, your chargeback management strategy will need to include the following representment tasks:
Maintain important records. Keep all important documents associated with the sale: receipts, emails, delivery confirmation, etc.
Open your mail. You’ll only have a couple days to dispute a chargeback. You need to know the moment a chargeback notification arrives.
Take action immediately. Once the chargeback time limit has expired, you’ll lose your chance to argue your claim.
Understand the chargeback reason codes. Each chargeback comes with a reason code. Research the code, learning why the cardholder might have made this complaint.
Communicate with the cardholder. Once a chargeback has been filed, contact the cardholder. Even if you can’t successfully resolve the cardholder’s issues, you might be able to gather helpful information to prevent future transaction disputes.
Gather the necessary evidence. To successfully dispute a chargeback, you’ll need to provide compelling evidence to prove your case.
Craft your defense. To dispute a chargeback, you’ll need to write a chargeback rebuttal letter.
Re-present the transaction. Submit the necessary paperwork so the acquirer can re-present the original transaction.
Follow up. Make sure your representment was received.
Check your bank accounts. If your representment was successful, the funds might have been deposited in your merchant account reserve. Be sure you operating account has sufficient funds.
Make notes for the future. Chargeback reports are one of the most valuable tools available to merchants. Reporting helps identify trends and track progress. Note your win-back rate, ROI, and other indicators of success.
DIY vs. Professional Chargeback Management
If you are struggling with chargebacks, it might seem pointless to invest in professional chargeback management. After all, you’re already having cash flow issues!
However, there are several shortcomings of DIY chargeback management efforts:
You can’t identify the real problem. Unless you are able to determine the real cause of your chargeback problems, you can’t adequately prevent or dispute them. Often times, merchants aren’t able to be objective about the situation and overlook the true instigators of chargebacks.
You don’t know the best strategies. The most effective chargeback management strategies are proactive. Rather than wait for chargebacks to become an issue, merchants need to take the necessary steps to head them off. While basic chargeback prevention will help, it isn’t usually enough.
You’ll spend too much time dwelling on the past. Do you want your business to move forwards or backwards? If you are constantly focused on problems of the past, you can’t successfully plan for the future.
You don’t speak the language. The chargeback process is filled with complex jargon. Even worse, the terms used by one bank or network aren’t universal; you’ll need to adapt for each chargeback you experience.
You have limited resources. You don’t have the time, energy or money necessary to handle all the tasks involved in chargeback management.
You can’t adjust quickly. Chargeback management needs to be dynamic, evolving in tandem with newly perceived threats and technologies. Doing the same old thing over and over again won’t adequately address new commerce changes.
You have limited access to necessary technology. There are various tools that will greatly improve the effectiveness of any chargeback management strategy. For example, Chargebacks911 clients are able to issue refunds to fraud victims who might otherwise file a chargeback. We also provide advanced affiliate fraud detection. These two proprietary technologies are only available to our clients.
As you can see, a DIY approach doesn’t measure up to professional chargeback management—especially if the situation is dire and your business’s longevity is in danger. Many merchants acknowledge that outsourcing the task of chargeback management is the better option, for some, it might be the only option.
You probably only know a small fraction of what’s involved in effective chargeback management.
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