Hello merchants! Happy New Year and we hope it will be the best one yet for you! To kick things off, we have a post about chargebacks! Recently, the trend of customers requesting chargebacks has increased and has caused issues for merchants. You may be asking: what are chargebacks? How do they affect you? How can you prevent them? All of these questions and more will be answered on this exciting episode of FlashBanc’s blog!
What is a Chargeback?
Chargebacks are a customer’s request to have their money refunded by their bank after a purchase. Their reasons may vary from dissatisfaction to having returned their merchandise and go as far as intending to commit friendly fraud. Roughly 75% of chargebacks are categorized under the last type, friendly fraud, where a customer makes a purchase online and then requests a chargeback from their bank upon receiving what they purchased. In addition, the number of chargebacks and the costs that they will incur upon merchants is rising, going from 81 million transactions totaling $6.1 billion in 2018 to 115 million transactions with a value of $8.6 billion in 2021.
How Do Chargebacks Affect You?
When these charges are requested, merchants are affected in two ways. Firstly, merchants are forced to refund the consumer’s money. Secondly, the merchant is charged a fee by the bank to investigate the situation. Even if the bank decides that the merchant has done nothing wrong, you are not likely to get the fee back. This form of refunding consumers is designed to protect consumers against merchants. With this in mind, it has become more popular for dishonest patrons to abuse the system to receive free goods and services. In fact, merchants can expect to have a chargeback decided in their favor roughly 20% of the time. Finally, racking up too many of these can have a merchant identified as high-risk which leads to higher processing rates and additional fees. At the end of the day, chargebacks can happen but we’re here to inform you on how to handle them and help you prevent them.
How Do You Prevent Chargebacks?
Chargebacks are generally caused due to a technical error during the transaction, a dissatisfied customer, or fraudulent behavior.
Technical errors may be caused due to expired cards, duplicate billing, incorrect amounts charged, banking errors, or if a refund was never properly credited to the customer. Each of these can be countered with proper checkout policies and procedures that ensure the correct amount is billed only once to cards that are valid and not expired. Additionally, make sure that you have a clear refund policy and are able to properly follow it for customers who qualify for a refund.
Customer dissatisfaction may be due to poor services rendered, delayed delivery, refused returns, or the customer may not remember the transaction taking place. By ensuring that your services or goods are of the highest quality, your products are shipped on time, keeping a clear return policy, and recording all transactions or filing away your receipts, you can minimize the number of chargebacks rendered due to upset customers. Additionally, keep clear channels of communication open between your business and your customers so that you have the opportunity to resolve any issues as they arise before customers initiate the chargeback process.
While it is difficult to prevent fraud, you can do your best to fight them by keeping clear records of all transactions, policies, and procedures. This way, if they do occur, you can be prepared to minimize the cases you lose and refund money.
Chargebacks are designed to protect consumers against errors and bad actors within the free market. While they are on the rise, there are many ways for you to prevent and fight them. If you have any questions that were not answered here, make sure to contact FlashBanc for all of your credit card processing needs. As a top merchant processor, we are dedicated to helping your business succeed.