When customer flows grow, so do chargebacks, leaving the merchant increasingly confused and worried about potential fraud or losses. This article explains the nature of such occurrences. It also offers an outline of situations where a chargeback is likely as well as some of the most effective chargeback prevention services that can put a stop to the problem.
Terms and Definitions
The word “chargeback” refers to a situation where a payment that has been transacted is reversed. This can happen upon a request from the bank or the card company. The procedure’s chief purpose is to protect customers from unauthorized transactions, but it is often abused for fraud or triggered mistakingly.
Possible Causes
There are many scenarios with the potential for chargebacks. Here are the most common of those:
- Customer mistakes. Sometimes a person clicks the Buy button twice rather than once but fails to notice it, or simply purchases something they didn’t intend to invest in along with another item by accident. The customer then sees the amount in the withdrawal statement and naturally wants to reverse the payment. Alternatively, a person might see a retailer name that doesn’t sound familiar and complain about an unauthorized transaction before they finally remember they did shop at the given place.
- Customer dissatisfaction. Even though organizations try to make it clear that delivery might be delayed due to the restrictions of the COVID-19 pandemic, this does not always prevent the customer from having their expectations. When the item does not arrive when supposedly due, they will likely reverse the payment.
- Friendly fraud. This refers to a situation where a customer knowingly makes a purchase and receives the item they paid for but then claims it wasn’t them who made the transaction in order to get a refund.
Harmful Effects
Canceled transactions are obviously bad for a merchant’s bottom line. Apart from simply losing money to refunds, though, the vendors carry the burden of verifying each and every purchase as well as the costs associated with processing such claims.
An extremely high chargeback rate is likely to affect your reputation, too. In many cases, there is a set threshold above which your processing rate grows considerably or your merchant account becomes invalid.
Prevention Strategies
There are two approaches to minimizing chargebacks that merchants tend to combine. First, you should focus on providing excellent customer service with tight, up-to-date descriptions of whatever you sell and when it is going to be delivered. A clear moneyback policy is also essential. Secondly, some services specifically prevent friendly fraud and deal with certain issues before a chargeback is raised.
Protect Your Bottom Line and Reputation
Regardless of what causes chargebacks, they are likely to hurt your business if their number grows beyond control. Thus, a combination of robust fraud detection and clarity is vital.
Have you ever been faced with friendly fraud? If so, you are welcome to share the alarming experience in the comments section.
