Offering suggestion for chargeback prevention to online merchants
As most of us already know, chargeback is the term for a reversed sales transaction: when the card issuer returns the transaction to the acquirer who, in turn, returns it to the financially liable merchant – the ultimate loser on each chargeback that occurs.
Since you are bound to find yourself in this position and prevention is thought to better than cure, we hope to help you do exactly that.
The most common reason for chargeback is “friendly fraud”; a not very friendly cheat by the consumer who reports a chargeback even-though goods have been received (often a bigger problem in high risk industries like gambling and adult). Other reasons include processing errors, authorization issues and customer disputes.
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Customer disputes happen when:
- Merchandize is not delivered
- A service is not performed as expected
- An agreed credit is not processed
Because these chargeback are related to customer service and a failure to address the issue can result in a loss of sales, it is important for merchants to get on top of the problem. Here are some suggestions:
- Inform customers, in writing if delayed delivery is expected
- Inform customers, in writing, if an item is out of stock and either indicate when stock is expected, cancel the transaction or give alternative options. Do NOT just send a substitute item.
- Return and refund policies must be clearly viewable on the merchant’s checkout screen so that customers cannot bypass it without clicking in acceptance.
- Do not deposit sales receipts with your acquirer until you have shipped the related merchandise.
- If a customer requests cancellation of a transaction that is billed periodically, cancel the transaction and advise the customer, in writing, the date of cancelation.
Other actions to be taken:
- Chargeback monitoring: keeping track can help you to pinpoint why chargebacks are happening.
- Staff training
- If you are in a high risk industry, make sure that you have made the right choices and that your payment processing company is helping you to buffer the effects of chargebacks within a well-balanced third party account. (See our insight called What is the difference between a Direct and a Third-Party Merchant Account? for more details.
Chargebacks is a broad topic but one that affects all merchant, specifically those in a card-not-present environment; we will be publishing a more in-depth insight into this topic at a later stage but in the meantime, Visa has published an informative document entitled Chargeback Management Guidelines for Visa Merchants.