Credit card chargebacks are a huge problem for small business owners. They were initially designed as a consumer protection measure and meant to safeguard the customer from fraud or unauthorized transactions, but nowadays, they serve more of an inconvenience than anything else. This is especially true for entrepreneurs trying their hardest to keep up with all aspects of running a successful business.
Chargebacks are a time-consuming and frustrating problem for business owners. According to the 2021 Chargeback Field Report done by chargeback911, the average merchant noted a 21% increase in friendly fraud between 2018 and 2021—in addition to the 25% chargebacks due to COVID-19. Some merchants were even reporting more than 50%.
In an effort for increased security, many retailers have been implementing chip cards since their release in 2017 but it seems like there’s still some way left before they’re cracked because of these recent findings from The Chargeback Field Report with its year over year increases.
In this article, we will discuss, what are credit card chargebacks and why they happen so often. We will also share 5 tips on how to avoid them!
What Is A Credit Card Chargeback?
A credit card chargeback happens when a customer disputes an authorized transaction and requests the money to be refunded. This process differs from a refund because refunds are handled directly by merchants, whereas chargebacks are managed through banks.
The chargeback process is designed to increase consumer confidence, but it can be a costly hassle for businesses. There are two ways disputes may arise: the customer initiates and disputes with their credit card company or when merchants detect possible fraud on their accounts. Credit cards offer consumers the ability to immediately take action if they think something isn’t right, while banks have to do all of the leg work in order to find out whether or not there was some sort of mistake made by either party involved in that transaction.
Chargebacks typically happen because someone believes an unauthorized purchase has been made against them. For example, this might occur through a stolen credit card number or other forms of financial identity theft, such as phishing scams where personal data could fall into bad hands.
Here’s how the complete chargeback process works:
- The customer disputes an authorized transaction with their bank and requests a refund. This is usually because they think the transaction was unauthorized, such as when someone steals your credit card number or uses your identity for other purposes.
- The banks then investigate to determine if the purchase was valid and then try to recover the money from the merchants acquiring bank.
- When fraudsters are detected, credit cards can be suspended while charges are investigated – which limits potential losses and helps avoid future unauthorized purchases on the same account. Consumers may not realize this has happened until it’s too late!
- For merchants who have suffered financial losses due to fraudulent transactions, face fines and penalties when a chargeback is closed in their favor.
Chargebacks can be avoided to some extent by following some basic steps. Let’s check out 5 tips on how you can avoid chargebacks at your business.
Offer Great Customer Service.
Credit card chargebacks likely are one of the biggest headaches for small business owners to deal with, and to avoid these types of disputes, they need to be proactive about making sure customers are happy before they even have an opportunity to dispute anything. Always be proactive in making sure customers are happy and do your best to solve any type of issue they might have with the purchase. Doing so will not only help prevent credit card chargebacks, but it’ll also increase customer satisfaction which is a key metric for businesses on social media networks such as Yelp or Google Reviews.
Communicate clearly with your customers – this will help you avoid any misunderstandings from happening in the first place! Make sure communication remains professional at all times; this helps foster a relationship of trust between yourself and clients who need assistance or have questions about transactions completed on behalf of them before contacting their issuing bank if needed.
Set Clear and Comprehensive Return Policies.
One of the best ways to avoid chargebacks is by having a clear refund policy. Display your return information at registers, post it on the website and print the details on each receipt. Be as specific as possible with a window of time for returns and any listed in-store or online exclusions.
A customer’s satisfaction with their purchase is the key to ensuring that they will not pursue a chargeback. Having an easy return policy and hassle-free refund process can lower this risk significantly, but only if customers are satisfied in the first place. Customers who are not satisfied with their purchase will often pursue a chargeback to get the full refund they believe they deserve. It takes time, energy and can be expensive for your business that can hurt your bottom line.
Create Detailed Product or Service Descriptions.
Transparency is key to success. Ensure your customers know exactly what they are buying by telling them upfront through detailed product and service descriptions. For example,
- What is the product or service they are purchasing?
- How does it work?
- Who benefits from its use?
- Why should customers buy this product or service now instead of waiting for a sale, promotion, etc.?
Greater transparency helps to deter fraudsters and inform customers what they are buying. This will not only prevent chargebacks but also improve your brand reputation through customer trust.
If you’re unsure what your customer wants to purchase, ask them. The only way to know is by asking questions and gathering feedback to serve their needs better.
Update Your Merchant Account With Correct Business Information.
Credit card chargebacks sometimes happen due to the shopper not recognizing your business name on their statement. For example, you might have a parent company name or former business that doesn’t resemble your current brand. This can lead customers who don’t realize they were shopping with you and request a refund from their bank by contacting customer service within 60 days of purchase.
Luckily, there are some things you can do to avoid these kinds of chargebacks. One way is by updating your merchant account with the correct business information to match what’s on file with the bank and appear in customer statements.
Keep Records Of All Your Transactions To Prevent Credit Card Chargebacks
Business owners should keep records of all their transactions to avoid credit card chargebacks. The more you record for every transaction, the better. A few things are always best to keep, such as the paid amount, date, cardholder information, etc.
Every year, business owners lose millions of dollars in lost merchandise and transaction reversals. However, some consumers often try to take advantage by purchasing items with no real intention of paying or claiming that the items were never received at all. The lack of a legible receipt can lead many retailers straight into their demise as these cases are left undefended because there is insufficient proof during chargeback disputes.
Ensure your sales receipts include complete details, so you have the edge over dishonest customers who want nothing more than to make off with what rightfully belongs on store shelves: money! A clean receipt should be the first step in fighting against any unjustified chargebacks and making sure such scams don’t go unnoticed – which will cost both time and capital resources.
Contact us today to learn more on how you can lower the chances of credit card chargeback by following the above mentioned prevention methods. Our payment processing solutions are designed to keep businesses safe from unwanted happenings like credit card chargebacks that can hurt the bottom line.