Ecommerce Chargebacks - What Are They?
Credit card chargebacks are forced refunds to a consumer generated by the bank as a result of a dispute or claim from the customer. In other words, it happens a lot in ecommerce, and it's a pain in the butt.
They are similar to a refund in that the funds are returned to the customer, but unlike a traditional refund, the money is taken directly from the merchants account and given to the customer, most of the time with no warning to the merchant and with the addition of a service fee ($15 - $100 dollars). Chargebacks were originally created by credit card companies to help protect their customers and their money. While it is an important safety feature in guarding against fraudulent charges, many merchants argue that some consumers may be taking advantage of the chargeback system.
When can a chargeback occur?
A consumer may request a chargeback if they:
- Feel the product is of lower quality than represented and the merchant refuses to replace or refund
- Suspect a fraudulent charge
- The product in question never arrived
- The name of the charge on their credit card statement is not familiar
With the ability to demand a chargeback at their fingertips many consumers may be using chargebacks for the wrong reasons. Some consumers will choose to request a chargeback because they do not want to deal with the hassle of returns. Some may also be participating in “friendly fraud”, meaning they want to keep their purchase and keep their money because chargebacks do not require the consumer to return the product to the merchant.
How to Prevent Credit Card Chargebacks
As an e-commerce merchant here five things you can do to reduce the amount of chargebacks to your company.
Use a Clear Payment Descriptor
It’s important to keep the payment descriptors clear and to use terms that the customer will recognize. If the payment descriptor on their credit card statement is different from the store or website name they purchased from, they have cause to dispute the charge.
Show Your Customer Service Skills
Process return requests quickly and provide the customer with information and updates regarding the return in a timely manner. In the event that the chargeback process has begun, take the time to contact the customer directly to discuss and potentially solve the issue. E-commerce business who provide subscription or member-based services may also avoid chargebacks by allowing customers to cancel their participation with a “no questions asked” policy.
Many e-commerce businesses have learned how to identify the warning signs of fraud. Watch for purchases where credit cards have incorrect security codes or the shipping and billing addresses are different. When a discrepancy does occur, calling the customer directly may help to determine the validity of the purchase. Having personnel who are trained in these detection techniques is also vital in staying ahead of fraudulent purchases.
Keep Good Records
Keeping good records of previous credit cards purchases including the date and amount of the transaction can help your case when a customer does pursue a credit card chargeback.
Have Contracts in Place
Having customers sign contracts or agreements can also cover your company in times of credit card chargeback disputes. E-commerce businesses who provide services can spell them out clearly in a contract and have their customers sign an agreement when they sign up or order the services. Other companies may benefit from providing terms and agreements about products before orders can be processed.
While chargebacks may be unavoidable in the world of e-commerce, there are ways to be proactive in your approach to decrease them.