Instituted primarily to protect consumers from fraudulent credit card activity, a chargeback is initiated when a customer disputes a charge from your business and asks their card issuer to reverse it. It then falls upon you to prove the charge was legitimate. If you fail to do so, the issuer will grant a refund to the customer and debit your merchant account for an equal amount, plus a chargeback fee that can range from $15 to $100—per transaction. Keep in mind though that not all card brands follow the same guidelines, but this American Express chargeback guide is helpful in learning their policy.
Now that we’ve identified what a chargeback is, here’s how your ecommerce operation can avoid them.
In addition to fraudulent activity, consumers can also request chargebacks if they:
- Didn’t receive an item they ordered
- Are dissatisfied with the product or service
- Were billed incorrectly
- Don’t recognize the charge on their statement
When a complaint is made, you have 10 days to dispute the claim with proof of purchase, delivery, or evidence you’ve settled the customer’s concern about the quality of the product or service. Hopefully though, the consumer will come to you before going to their card company so you can have a chance to rectify the situation without the card company’s involvement.
This is ideal, because card companies keep track of chargebacks lodged against merchants. When you hit a certain number, issuers will refuse to fund your sales. This can have an extremely debilitative effect on your business.
To help avoid chargebacks, train your employees to follow the card issuer’s procedures religiously and to look for signs of fraud. Make sure every transaction gets the card’s expiration date, as well as the security code number. If additional identify verification services are offered, avail yourself of them. Those procedures are put in place to minimize fraud. Circumventing them only sets you up for problems.
If you take advantage of free ecommerce website software, make sure it adheres to the Payment Card Industry Data Security Standard (PCI DSS), along with the rest of your network. In addition to securing your checkout pages, the software should secure every page of the site. Employ encryption, fraud filters and tokenize credit card numbers to impose added layers of security.
Fraud aside, many chargebacks happen because the customer doesn’t recognize your company name on their bill. If your site has one name and your company has a different one, make sure the site’s name appears as the billing descriptor on the customer’s statement to avoid confusion.
Many merchants wait to charge the customer’s account until after the product actually ships. That way, if shipping is delayed, you won’t have a customer looking at a bill for something they have yet to receive.
To avoid customer dissatisfaction, be very thorough in your product descriptions. Use lots of photographs so they can see clearly what the item looks like. If the merchandise is complicated, include video demonstrations. These steps will improve the potential for satisfaction when the product arrives.
If a customer contacts you with a concern, drop everything and deal with it right away. The last thing you want to do is give them the impression you don’t care and send them off to complain angrily to their card issuer. Demonstrating immediate concern and working diligently to reach a solution will ultimately be advantageous for you.
Chargebacks can be a real pain in the bottom line, but if your ecommerce operation follows these tips you can avoid them most of the time. When you can’t, rather than ignore an issuer’s inquiry, jump on it right away. And, when it makes sense to do so, fight them with everything you have.