What is a Credit Card Chargeback?
Consumer use of credit cards is on the rise, especially in eCommerce stores. Along with this uptick of credit card payments are also credit card dispute transaction chargeback, the bane of many eCommerce merchants who need chargeback prevention services. If you are not familiar with credit card chargebacks, they occur when a customer disputes a charge on their card to the bank, not the retailer from whom they purchased goods or services.
If your industry or business encounters a higher rate of credit charge chargebacks than most other retailers, the acquiring banks that accept and approve credit card payments will either freeze the merchant account that collects the funds from credit card payments or sharply increase the credit card processing rate for that merchant. There are many reasons a consumer may file a return item chargeback. There are over 50 chargeback reason codes between all the major card brands, and while the list is too long to cover them all here, we will address what exactly a chargeback is, the most commonly abused reasons for a credit card chargeback dispute transaction, chargeback prevention services, and how to fight credit card chargebacks.
The truth is, credit card chargebacks can occur for a variety of reasons, but one thing is for certain: chargebacks account for revenue loss.
While you do not need to be a chargeback know-it-all, comprehending the challenge you’re up against can make it possible to improve your operational measures to help you stop chargebacks in their tracks.
Stay ahead of chargebacks with high risk merchant accounts that offer chargeback protection – but first and foremost, the most important tip we have (especially for those business owners in high risk verticals) is to be sure that your company chooses a secure high risk merchant account to deflect many of the stressors that come with credit card chargebacks and for all your payment processing needs.
What are Some of the Most Common Reasons a Customer might Initiate a Chargeback?
How to avoid this in the future: When it comes to credit card chargeback fraud there are many tools available to merchants to alleviate fraud in the online payments world.
- iSpy Fraud Tool: iSpyFraud is a rules-based fraud prevention tool that merchants can use to screen suspicious transaction activity, helping merchants to stay one step ahead of credit card chargeback fraud.
- Verified by Visa/MC Secure Code: Both Visa and MasterCard have programs that allow you to add an additional layer of security to your sales, and potentially avoid a return item credit card chargeback fee.
- 3D Secure: 3D Secure was created by Visa and MasterCard to add an additional layer of security for Card Not Present (CNP) and high risk merchants.
- Gateway Tools: Utilize the standard gateway tools at your disposal to avoid an unnecessary return item chargeback. Be sure you turn on and make use of AVS (Address Verification Services) and CVV (Card Verification Value).
2. Transaction Not Recognized
Processes to implement preventing this: In high risk payment processing, your payment descriptor is the merchant name, as well as other identifying details that appear on the customer’s statement when they make a purchase from you. If the customer doesn’t recognize the name that appears on their statement, it is unlikely they will know what the charge was for. To avoid a credit card chargeback dispute transaction, the solution is to be sure your descriptor reflects what the consumer will recognize.
3. Incorrect Transaction Amount / Fraudulent Multiple Transactions
What to look for: You may run into a system error that can lead to the customer’s credit card being charged twice, which risks the potential of a return item chargeback fee. Occasionally, a customer accidentally pressed the “Check Out” button twice, leading to a duplicate charge. If you happen to see a duplicate order, assume that it was a mistake and contact the customer to confirm. If there is a manual process, the person processing the credit card might make an error. Avoid doing manual processing of orders if possible, and be sure to state the credit card chargeback time limit somewhere within your return policy guidelines.
4. Not as Described or Defective Merchandise
Here is what you should do: You can’t make everyone happy, and that goes double for consumers. Make sure you have a responsive customer service team with short hold times. Only one thing infuriates a consumer more than long wait times; speaking with a customer service rep for a company with too strict of a return policy. You need guidelines for how to fight chargebacks, and make sure your return policy is clearly located on your website in a way that is fair for both parties involved.
5. Services Not Provided or Merchandise Not Received
The resolution: Start with clear expectations and a visible shipping policy on your website and keep your customers informed by emailing order status updates. Sometimes there are circumstances out of your control, especially for those with a mobile merchant account, that can cause a delay in shipping. Issues in this area can range from unexpected weather causing shipping delays, to an unexpected turn in sales causing you to run out of product – regardless, for a return item chargeback to be avoided, advise the customer of the delay and give them the option to cancel.
6. Canceled Recurring Transaction
The solution: If a customer requests cancellation of a recurring transaction that is billed periodically (monthly, quarterly, annually), always respond to the request and cancel the transaction immediately – or as specified by the customer. If you don’t want to fall subject to a credit card chargeback, advise the customer in writing that the service, subscription, or membership has been canceled and be sure to state the effective date of cancellation. Failure to respond to customer cancellation requests almost always leads to a chargeback.
7. Credit Not Processed
How to dodge this problem: Always make refunds in a timely manner and do so to the same credit or debit card the consumer paid with. Failure of timely refunds can result in a return item chargeback or a basic credit card chargeback. Make sure you communicate to your customer how long it will take before they see the refund.
This information may seem basic to some people, but when it comes to the integrity of how your business is conducted and your consumer retention, it’s always best to cross your T’s and dot your I’s. Knowledge is power, which is why knowing how to fight chargebacks in regards to the credit card chargeback time limit and how to avoid this type of situation all together can be a powerful resource. Be sure that your company chooses a secure high risk merchant account to deflect many of these stressors and for all your payment processing needs.
If you’re unsure whether or not your company has been categorized as a high risk merchant, be sure to read more here for a complete list of businesses in this arena and to answer the question: What is a High Risk Merchant Account?
What is a Refund Versus a Dispute Transaction Chargeback?
Not providing a refund can cause an unwanted chargeback, despite any systems of chargeback protection, which can be very detrimental to a merchant’s long-term goals.
A chargeback is a refund that the merchant is forced to give, as opposed to a refund voluntarily given. If a company’s chargebacks exceed 1% of their total sales, you could end up pay fines or even have your merchant account shut down completely. Once you’re in credit card chargeback trouble, applying for another merchant account becomes even more difficult, especially for those who need a high risk merchant account, and many payment processors will deny your application.
Other payment processing companies may take you, however, they’ll likely charge higher fees that can be double, and you’ll be requested for a larger reserve up front. Every retailer attempts to create a refund policy that will protect each purchase. Most payment processors prefer at least a 30-day unconditional refund policy. Many insist their customer take back the unused part of their merchandise.
No merchant wishes to be taken advantage of having their product used and have the customer get all the guaranteed benefits, only to then request a refund just because consumers can refund it.
Think of it this way, managing refunded products can prove expensive in several ways. Your payment processing company may charge you for the effort to receive and track your returned items. Clients often get lazy or upset with the concept of sending back products, because it’s time-consuming to pack and arrange shipping; and sometimes clients are averse to paying the postage charges to ship a returned item.
Some payment processors are now requiring that merchants provide refunds without getting the unused part of their merchandise back. The idea is to take a long-term approach, even if it means taking a couple of hits along the way. The goal is to assure that customers don’t contact their bank card company and initiate a chargeback.
Needless to say, credit card chargebacks are expensive, time-consuming, and resource draining. They’re burdensome for all merchants, but smaller retailers can especially struggle if they do not have the necessary in-house expertise to make an impact.
How Can a Refund Policy Prevent Chargebacks?
Believe it or not, a strict return policy can actually hurt your business more than a more flexible policy. Dissatisfied customers or customers disputing charges due to fraud will not accept a no from you if they are motivated and angry enough to appeal to their credit card provider for a return on their funds. When the banks need to refund your customers instead of you, you end up paying more in higher processing rates or losing business because the bank froze your merchant account.
If you are looking for more flexible refund/return solutions here are a few things you can do:
- Set up a Solid Product Page. When listing your products, make sure descriptions are accurate and that you have clear and accurate imagery depicting the product at all angles. Being thorough with your product presentation will prevent users from disputing a charge due to misrepresentation, counterfeit merchandise, or not as described/defective merchandise claims, which in turn prevents a filed chargeback.
- No Strings Attached Cancellations. If a customer has to cancel their recurring payment, or their one-time order, make sure they have a clear idea of how to do that on your site. If you tack on terms like early cancellation fees, this will only cause the customer to circumvent your process and go directly to their credit card provider and chargeback the purchase.
- Offer Return Options. No one wants to lose a sale outright, and your customers may be willing to give your other offerings a chance instead of demanding their money back. You could offer to accept a return for store credit or for exchange for a similarly valued product. The idea is to keep that sale on your books and avoid a credit card chargeback, in whatever way possible, and to impart satisfaction and trust on to your customers.
- Use Plain and Simple Language. Your customers are less likely to file for a chargeback if they can clearly understand your return/refund policy. If you accept returns, make sure you indicate a time period when they will be accepted. If they will only receive a store credit for their return, make sure that is clear in the policy. Also, outline any additional potential charges incurred by the customer. If they need to send it back, who will cover shipping fees? Will there be a restocking charge to accept the product back in inventory? Use the KISS principle: Keep It Simple, Sweetie!
- Define “All Sales Final” Situations. If you are unable to accept goods back due to seasonality or other extraneous circumstances, you need to indicate that on your product page. If the customer knows that the sale is final, they will consider the purchase more and be less likely to want to return the product.
Chargebacks are expensive, time-consuming, and resource draining. They’re burdensome for all merchants, but smaller retailers can especially struggle if they do not have the necessary in-house expertise to make an impact.
Debunking common misconceptions about chargebacks and addressing common issues in the dispute resolution procedures gives a solid foundation for those merchants seeking to implement an effective chargeback program.The following is a breakdown of some chargeback myths and realities:
MYTH: You can’t win a chargeback dispute transaction
REALITY: Implementing a seller’s expertise can not only ease the time and resources needed to dispute credit card chargebacks and reclaim lost dollars, but a few are able to provide internet recovery rates of more than 50 percent to substantially boost your bottom line
MYTH: Winning a chargeback dispute transaction will decrease your monthly credit card chargeback ratio with your acquiring bank
REALITY: Chargebacks aren’t reduced if obtained; once they occur, they count against your chargeback ratio, even though you may be regaining cash
MYTH: It’s not possible to win a disputed transaction chargeback report if you don’t have a signed receipt
REALITY: Signs that a sale has been made can include a number of items aside from a signed receipt, such as photographs or emails proving a link between the individual receiving the merchandise as well as the cardholder, or demonstrating that the cardholder disputing the trade is in possession of the merchandise; which will definitely help dispute the credit card chargeback
MYTH: You can’t lower your chargeback ratio without reducing sales
REALITY: There are lots of steps you can take to decrease your credit card chargeback ratio without decreasing sales. A common method involves requiring customers to register their cardholder data by validating their info. Cardholders answer a string of questions only they would have the ability to answer, as well as pick a secret phrase or password. This feature allows you to confirm return traffic in an easy, non-intrusive manner while allowing you to maintain legitimate sales and fight illegitimate chargebacks
MYTH: You can not battle a PayPal dispute transaction
REALITY: PayPal provides seller chargeback protection from chargebacks for retailers who meet the eligibility conditions according to Unauthorized Transactions or Item Not Received. The scope protects sellers for the whole amount of payment, and also waives the credit card chargeback fee, if applicable
Why Seek Chargeback Prevention Services with PayKings?
The truth is, chargebacks occur for a variety of reasons, but one thing is for certain: credit card chargebacks account for revenue loss. While you do not need to be a chargeback know-it-all, comprehending the challenge you’re up against can make it possible to improve your operational measures and chargeback protection to help you stop chargebacks dead in their tracks.
We’ve got you covered on all the ins and outs of payment processing question, concerns, and merchant accounts – but we also care about the longevity of your merchant account and the overall success of your business – which is why keeping a finger on the chargebacks pulse is imperative. Implement some of these tips and you’re sure to see a reduction in credit card chargebacks.
That said if you found yourself in a situation where you are paying high rates for credit card processing, or a payment processor has frozen your high risk merchant account and are holding funds outright, get in touch with us about high risk payment processing solutions. We have relationships with 20+ acquiring banks and can help negotiate the best rates for your high risk merchant account. Click for a free quote.