According to recent studies, merchants are looking at chargebacks in excess of $20 billion (USD) by 2020 and this might be a conservative figure. It’s become increasingly important to recognize the impact this can have on an enterprise’s bottom line and why it’s best to approach it with a purpose.
This read will analyze the intricacies of chargebacks, chargeback representment, chargeback prevention, and dealing with fraudulent chargebacks.
What Is a Chargeback?
Before looking at the chargeback rate or how to reduce chargebacks, it’s important to understand what it means as a financial concept.
A chargeback refers to financial compensation due to negligence on the part of a merchant and/or individual and is regarded as “consumer protection.” It is used as a way to handle potential fraudulent activity before it turns into a long-term issue.
While the concept sounds great in theory and does hold merit in certain circumstances, it can also pose a great risk if the wrong claims are made. For example, a chargeback can be processed despite the product and/or service being delivered exactly as promised. Since the verification is minimal unless changes are made, it is easy for fraudulent transactions to go through. This is why understanding chargeback rules and digging deeper is of utmost importance in this day and age. It’s essential to differentiate between a valid and invalid chargeback request as a business or it can start to have a deep impact on the bottom line. The credit card company will process the chargeback in seconds but it’s up to the merchant to avoid continuous damage. A chargeback request is something to keep an eye out for while dealing with the credit card company.
Common Causes of Credit Card Chargebacks
To maintain full chargeback protection, it’s essential to understand what the common causes are of these chargebacks.
Here are some of the causes often seen when it comes to modern-day chargeback fraud. To avoid this type of chargeback fraud, it’s best to take a look at the causes and start to work on them one by one.
- Unauthorized Mail Order
- Non-Receipt of Requested Item
- Duplicate Processing
- Non-Receipt of Merchandise
- No Credit Issued
- Compliance Case
- Breach of Duty
- Split Transaction
- Law Violation
- No Credit Issued
- Cardholder Legal Claim
Chargeback management has to begin by discovering and analyzing these causes one by one. Each one holds merit in certain cases but this doesn’t mean fraud isn’t a potential reality. Merchants do have to deal with aggressive losses if there is an issue in how things are being done, so it is imperative to stay focused while signing up with a credit card processor. Being able to go with a good one is a great way to eliminate these issues immediately.
How To Prevent Chargebacks
While digging through the various chargeback reason codes, it is essential to think about ways to prevent these realities before they surface. Too many merchants don’t do this and it applies unnecessary pressure to their bottom line.
Here are four ways to ways to prevent a chargeback dispute before it has the chance to transpire. Dealing with ongoing chargebacks isn’t impossible with these solutions.
1) Maintain Clear Payment Descriptor
Start with the basics because a poor payment descriptor is going to be a major hurdle. It can be something as simple as not showing the right name when a payment goes through and is charged to an account. If the customer doesn’t know what it is, this is going to lead to an eventual chargeback. This is why keeping things to the point and as clear as possible is a must. A good payment descriptor helps with chargebacks.
2) Follow Credit Card Processor’s Directions
Each credit card processor is going to have a set protocol and it is important to follow it to manage chargebacks before they create issues. It is easy to ignore such issues but they can do a lot of damage.
3) Prioritize Customer Service
Is the customer service as good as it needs to be? Make sure the customers aren’t being ignored since this can do a lot of damage. If they aren’t heard, they will make the request and that is going to lead to a loss.
4) Don’t Turn Blind Eye To Fraud
It is easy to assume fraud is not an issue and that is untrue. Fraud can be an issue and it is important to spot it with the help of a quality credit card processor such as this one.
Avoiding fraud is all about doing your due diligence, remaining on top of things, and being able to take control whenever there is an ongoing issue. Don’t be afraid to take a peek.
What are Chargeback Fees?
Let’s move onto understand what a chargeback fee is for those who are still trying to grasp the premise and how it works.
A chargeback fee refers to the amount a merchant pays for the funds to be returned to a customer. For example, if the chargeback has been requested then it is going to be put through by the financial institution. However, this means the merchant is going to be issued with a set chargeback fee for all administrative costs associated with the service. Now, this is going to add up and can become a major problem.
A $100 chargeback could result in as much as $240 in chargeback fees.
This is a costly expense and also means the merchandise/service has been wasted too. This is going to add up and is a hassle for those who are looking to simplify things as much as possible. To avoid a chargeback fee, it becomes important to root out the issue and dig into what is going on. This is the only way to stay safe and know things are not going to fall apart in the long-term with regards to chargebacks.
What is Chargeback Fraud?
While looking at a reason code, it might seem like the chargebacks are legitimate in some cases and they can be but there is a real concern with fraud. There are customers that take advantage of the system and this can become a real nuisance for merchants to deal with in the long-run. No one wants to deal with fraud but it is important to recognize what this type of fraud looks like with chargebacks.
In general, it is simple.
Chargeback fraud is when a customer purchases a product/service, acquires it as requested, and then puts in a chargeback request. The bank has to comply with the reason code and makes the payment as processed. This hurts the merchant and that is why it is known as a friendly fraud because of how easy it is to do it.
Spotting this type of fraud has to become a part of the process and analyzing the reason code pattern is a good way of doing this. By looking at the reason code and seeing a pattern, it is easier to spot where advantages are being taken. No one wants to deal with a fraudulent retrieval request but it can happen with chargebacks.
Tips to avoid potential Retrieval Requests and Chargebacks
1) Find Good Credit Card Processor
Start with a good credit card processor as its protocol is going to save you from such issues in the long-term. Everything is going to be handled with a purpose and the protocol is going to streamline everything so nothing slips through the cracks with chargebacks.
2) Be Vigilant
To prevent chargebacks, it is important to stay as vigilant as possible.
This is one way to spot issues and take care of them before they go out of control. If there is a pattern, you should be able to pick it up after taking a look at the various transactions. This is an ideal way to make sure you are not letting things slip by and are using the processor as well as you should be for chargebacks.
3) Emphasize Customer Service
Sometimes it is the simple changes that are enough to make things easier with chargebacks.
For example, is the business doing enough to take care of its customers? If a retrieval request has gone through, this doesn’t mean it is legitimately fraudulent activity. It can be a real issue and that is where customer service can help out. Pay attention to this with chargebacks so it doesn’t become an ongoing hassle for the business.
Chargebacks as a Lagging Indicator
It’s important to realize credit card chargebacks are not entirely wasteful or hurtful as long as there is a purpose behind your research. Are you taking the time to analyze what is transpiring? Are you taking the data to see what is going wrong on your end? These are realities a lot of merchants don’t think about and it is essential to pay attention to it as a lagging indicator.
The chargeback process can yield great results as long as you are vigilant with all chargebacks.
List down all of the codes and take a look at everything side by side. Is there a particular issue that is coming up more often than the others? Is there a reason why it is showing up more? You want to take a look into this and then see if changes can be made to bring the number down. It is far better to do this than to start blaming others. By making changes, this is going to bring the number down rapidly. It is one of the best ways to take what is going on and turning it around to improve your business as a whole. It can do wonders for the bottom line and your chargebacks.
Merchant Losses to Chargebacks
The chargeback process is going to lead to losses and as mentioned before, these losses are going to be extensive in some cases. It is essential to keep an eye out for what is going on and keep the number of losses under control. Yes, there are going to be times where these losses occur but it is just as important to know why they are happening.
These losses shouldn’t become a major part of the losses a business is seeing.
If that is the case, it is time to make an immediate change and revamp things with the help of a trusted credit card processor such as this one.
Responding to Chargebacks
- Respond Immediately
- Emphasize Customer Service
- Check I.D.
- Communicate Freely
- Ask for Signatures with Chargebacks
These are the five steps to making sure you are increasing your business and helping customers out without letting fraudulent activity slip by. The signature is a great way to know what is going on and weed out those who are trying to make easy money. This is often going to take care of those who want an easy way to earn money through friendly fraud. The same applies to the I.D. and making sure you are asking for it as a merchant.
Never ignore these steps and assume things are going to work out on their own. The response should be swift, to the point, and accurate. This is going to keep things on the straight and narrow as a business.
Anything else will lead to insufficient returns with chargebacks.
Why GAM Payments?
GAM Payments is heralded as one of the premier payment providers on the planet and is now used by thousands of merchants with great success. Being able to rely on a trustworthy solution is going to make the chargeback process as smooth as it needs to be. This service is quick, reliable, and professional from day one. Trusting a team with a reputable background is going to simplify things for merchants and is going to ensure the chargeback process doesn’t become a major hassle in how business is done. GAM Payments has become a world-class solution for those who want to develop, grow, and become a leading business.
Sign up with GAM Payments and take advantage of a top-tier service that has helped merchants gain control of their finances. The days of dealing with a fraudulent chargeback process should be well in the past as long as this provider is used for handling chargebacks.