How do chargebacks affect merchant services?

Are chargeback effects severe for merchants?

Yes. Chargebacks effects result in a great deal of lost revenue, lost product, fees and review time for merchants. Given issuing banks’ desire to please their customers and consumer protection laws, chargebacks often result in a forced refund for the merchant. Revenue and product is lost and chargeback fees are imposed on merchants by issuing banks costing the retail industry tens of billions of dollars annually, not to mention the time consumed by trying to fight unjust chargebacks.

Are merchants negatively impacted by chargeback defects?

Chargeback defects are damaging for a number of reasons including:

  • Chargeback was processed regardless of the merchant’s action. The merchant is therefore liable for associated fines, fees and penalties.
  • Because chargeback defects occur in a very compressed window of time, retailers often do not have time to stop the shipment of products or delivery of services resulting in additional lost revenue.
  • Double refunding often results from the timing of the refund failing to stop the chargeback. The merchant will pay the refund offered the customer to take care of the dispute and the issuer will require a refund to be paid once the false chargeback results.

The scenario below illustrates the damage caused by chargeback alert defects:

  • Cost per alert – $48
  • Defect rate – 52%
  • Chargeback volume/year – 13,500
  • Average price of product – $65
  • Chargeback fee from acquirer: $25

Resulting calculations:

  • $648,000 paid to solution provider to stop 13,500 chargebacks on $877,500 in sales
  • Additional impacts of defects:
    • $336,960 paid for 7,020 faulty alerts
    • $175,500 in chargeback fees on the defective chargebacks not stopped
    • Merchant account processing privileges at possible risk
    • Addition profit loss on transactions where double refunding occurred

In addition, to calculate the true cost per transaction, the merchant would need to factor in the costs of lost product, chargeback fees, cost of man-hours spent on unnecessary manual review. Needless to say, the costs do not align favorably.

What can merchants do to reduce credit card disputes?

Chargebacks don’t need to be part of your business costs. The time and money spent fighting these credit card disputes is preventable and avoidable. Your chances of succeeding in fighting and winning a chargeback case is not high – but you can prevent chargebacks from occurring.

This is a key to business success that so many merchants simply don’t understand. While chargeback disputes can be almost impossible to win – you can prevent them from occurring.

To prevent credit card disputes and chargebacks from happening, you do need to be proactive and have proven solutions and systems in place to make it easier for you to reduce and eliminate chargebacks.

We’ve put together a list of suggestions on what you can do to prevent and reduce chargebacks from occurring. As always, don’t hesitate to contact us to find out how we can help you. Browse our FAQs and Resources to learn more about chargebacks and protecting your business.

Order awareness – not all orders are good ones. Your customer service and order processing team can help you prevent chargebacks by keeping an eye out for orders that raise red flags. For example, the following orders can and should raise red flags:

  • Bulk orders: when a customer makes a large bulk purchase that they haven’t made previously or is made by a brand new customer. This is worth investigating before you send out the items. A simple confirmation email or phone call can go a long way in preventing a fraudulent purchase and ultimately a chargeback.
  • Multiple orders: if you see multiple orders happening in a short time period, this can signal purchases being made with a stolen credit card or debit card. Contact the card holder to validate and confirm the purchase.

Customer awareness – it pays for you to vet your customers. Keep tabs on the billing address and shipping address. Does this customer typically ship items to a different address? If this is happening for the first time, it’s worth your while to confirm this different address. Pay particular attention to international addresses, does this customer typically order products from you and have them delivered to another country? These purchases, if indeed fraudulent, can be very hard to recover – so it’s worth your time to double-check this transaction.

Customer contact information – make sure you have valid and up-to-date customer contact information. Don’t hesitate to confirm the customer’s email address and mobile phone number. In fact, many customers expect this kind of validation with a confirmation email or text sent to their mobile device. This extra step gives you confidence that the customer did indeed make the order and the customer feels protected from fraud when you take the time to confirm this credit card transaction.

Process automation – while we all like to believe that we don’t make mistakes, the truth is that we all make mistakes… One of the best ways to prevent processing and transaction management mistakes is to use a proven automation workflow processes. This allows you to eliminate the questions of human error when it comes to preventing credit card disputes.

Prioritize – too often we talk to merchants who have wasted their time and efforts on chargebacks which we can plainly see aren’t winnable. But, how are you supposed to know which chargebacks are winnable? This is why you need expert advice such as that of the team. We can help you decipher any chargebacks that do occur and advise you on your ability to win these disputes.

Data intelligence – it’s almost impossible to prevent chargeback when you don’t have any data about these chargebacks. Using a straight-forward data collection mechanism allows you to analyze data and continually optimize your processes to reduce chargebacks.

Concise billing –including a website address, phone number and recognized Doing Business As (DBA) on billing statements, reduces customer confusion that can result in chargebacks. Particularly in so-called friendly fraud cases, the customer will dispute the charge by claiming they don’t recognize the business name on their credit card statement. Make sure your information is clear and that your return policies are accessible on your website.

Improve operations – no one wants to receive a defective product or a product that doesn’t match the product description. Take the time to identify and address issues within operations (product quality, unclear product descriptions or other issues). Make sure your product labeling, website, instruction manuals, and product quality are of high standards. The revenue lost from misinformation and confusion over product standards can add up.

Work with – helps merchants like you resolve credit card disputes with the consumer directly – before it is escalated to the Issuer. We’ll work with you to implement our simple-to-use end-to-end solution that gives you both front- and back-end protection. We’ll show you how you can automate the process so you spend less time dealing with disputes and more time growing your business.