How Merchants Can Reduce Chargebacks and Navigate Disputes
How Merchants Can Reduce Chargebacks and Navigate Disputes
Chargebacks are an unavoidable part of the online retail universe, and when not handled correctly, can become a massive financial burden to merchants. Beyond the financial toll, handling chargeback disputes is a tedious, time-consuming process - forcing the merchant to take their attention away from other strategic business tasks and deal with the stressful reality of potentially losing their payment processing capabilities if they exceed the designated chargeback threshold for a given time period.
Before we dive into some useful tips on how to navigate these disputes, let’s break down the ins and outs of chargebacks.
The Anatomy of the Chargeback Dispute
A chargeback is a dispute filed by the customer with their bank to reverse a transaction. Chargebacks can be filed for a variety of reasons such as fraud and customer complaints, but we’ll speak to that more below. Overall, chargebacks function as a sort of “safety net” offered by the bank to reduce their customer's potential risk when making online payments.
Chargebacks can also ensure the merchant stays accountable, and continuously provide their online shoppers with top-notch customer service because if they don’t, chargebacks are one of the many consequences that can have a serious impact on their business.
So, how can merchants reduce the number of disputes they receive, as well as mitigate the associated risks? The short answer: Crank up your customer communication.
Our team of experts recommends you follow these steps when refining your communication strategy.
Step one: Be customer-first for service, systems, and resources
When customers need to reach you, can they? Are your contact details or forms easy to find and use? Do you regularly check and respond to messages from your contact forms and social media? And are you sure you are responding to these messages in a timely manner?
It’s crucial that all of your customer service systems are accessible, clear, and simple to use. If a customer needs to hunt for your contact info, or search for ways to track their purchase, they’re more likely to give up and just file a chargeback out of frustration.
You can reduce this frustration by having clear contact information and tracking resources available on invoices, on your website, and in your communication with your customers. You can also increase accessibility and speed by having live chat features on your website for quicker service.
Once those systems are in place, be sure to monitor them for any issues or malfunctions.
This may sound simple, but our team recently dealt with a situation where an entire region of a merchant’s business was frustrated and filing chargebacks, because a “contact us” section on their website was malfunctioning and they couldn’t get in touch with the merchant!
Step Two: Clearly define shipping terms.
With more and more consumers turning to digital channels to fulfill their shopping needs, the increase in online orders has resulted in an increase in shipping delays. It’s important to manage your customers’ expectations by updating your terms and conditions, as well as clearly communicating any anticipated shipping delays before your customer clicks the “buy now” button. By educating your customers, you will prepare them for what to expect and remove the risk of a chargeback dispute because of a lack of information.
Step Three: Communicate regularly.
If customers don’t hear from you post-purchase, they may have trouble remembering who you are when reviewing their bank statement - and decide to dispute the charge. That’s why it’s important to adopt a solid post-purchase marketing strategy that will keep your brand top of mind, secure repeat business, and provide easy access to contact or shipping information.
Step Four: Create crystal clear invoices and offer additional resources.
In addition to a solid post-purchase campaign, opportunities for clear communication with your customer can also live on your website, as well as the invoices you send! If a customer has questions or concerns about their purchase, they are likely to refer back to their invoice for any relevant tracking and shipping information - or look for this information on your ecommerce website. That’s why having an FAQ page, customer service chatbot, or a contact page with a number of different ways they can reach out - is vital
Step Five: Clearly define your return policies and procedures
Many merchants have policies that are open to interpretation. Many merchants’ policies are nonexistent. Although having a clearly defined return process won’t prevent a malicious claim from being filed, it will give those with genuine reasons for dissatisfaction something to consider before doing so.
Regardless of how proactive you are, chargebacks will sometimes still happen. The steps mentioned above will help to reduce them significantly, but keep in mind that you still need to have evidence in order to dispute erroneously filed claims.
Evidence You’ll Need to Win a Chargeback Dispute
Once a chargeback is filed, a merchant can either accept it and refund the customer, or dispute the chargeback. It’s in the merchant’s best interest to dispute the charge when possible, or they risk exceeding a Chargeback Ratio. This is the ratio credit card companies set, telling merchants they have to keep chargeback rates at less than one percent of their total transaction amounts or they can lose the ability to perform those transactions. No one wants a risky investment, and that includes payment processors.
Disputes are difficult to navigate, even when you’re completely correct. The biggest misconception merchants have about chargebacks is the level of evidence required. They often believe that if they can show they have shipped the order out, they are absolved of consequence – but this is not enough to win the dispute. Fraudulent orders made by bad actors can still be delivered successfully.
So, what do you need to win a chargeback dispute?
- Copy of shipping documentation
- Customer communication
- Fraud data
- Fraud reports
- CVV and AVS checks (the three-digit code on the back of the customer’s credit card and cross-referencing the billing address and name with the actual card holder’s information)
Reach provides the last three checklist items as part of its comprehensive fraud package, and it includes contacting customers directly as part of the dynamic dispute resolution process. Each dispute requires a subjective review to sort out.
Some merchants generate those data points themselves or use other third parties to generate them. Regardless of how you capture the intel, you will want to have it collected and handy to keep those chargeback ratios in check. When merchants win chargeback disputes, they aren’t counted against their total, which is great. What isn’t great is the frequency with which the disputes are happening.
Have you noticed an increase in chargebacks? What steps have you taken to get ahead of the issue? Reach helps our merchants dispute chargebacks and offers strategic advice on how brands can improve their chargeback rate and minimize fees.
Reach out and we can share some tips that are more specific to your needs!