Credit Card Chargebacks vs Refunds: Credit Card Chargeback Protection With Refund Policies

March 8, 2023 | Merchants | Dustin

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 chargebacks, the bane of many eCommerce merchants. 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 a 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.

The law of averages (and a little bit of Murphy’s Law) insinuates that as your sales increase, so do the chances that customers dispute their charges (aka chargeback). While it is a statistical inevitability, there are things merchants can do to protect themselves against chargebacks. Though it may seem counterintuitive, having a solid return/refund policy can provide merchants with some measure of credit card chargeback prevention.

How a Refund Policy Can 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.

1. 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.
2. 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.
3. 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, in whatever way possible and to impart satisfaction and trust on to your customers.
4. 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!
5. 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.

Implement some of these tips and you may see a reduction of credit card chargebacks. If you found yourself in a situation where you are paying high rates for credit card processing, or a payment processor has frozen your 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. Apply for a free quote today!