How to Manage Your Chargebacks More Efficiently

By Harriet Phelps

Being a retail merchant is never easy, especially if you’re accepting digital payments such as credit cards. More often than not, problems arising from these payment channels such as chargebacks usually become a big challenge and a frustrating threat to your livelihood.

Primarily, a chargeback refers to a reversal of a credit card payment initiated by the cardholder’s bank. While it’s meant to protect consumers from any fraudulent acts, it can put merchants like you in a precarious position, especially if you have a high-risk merchant account. For instance, you may find out about a chargeback dispute too late, making it difficult for you to take active measures and deal with the issues within the process. As a result, your business may end up with significant losses.

To protect your business’ interests, keep reading this article to learn how to manage your chargebacks more efficiently.

  1. Determine The Type Of Fraud

To properly handle chargebacks, it’s important to determine the type of fraud your business is facing. When you know which type you’re dealing with, you’ll be able to come up with good chargeback management efforts that’ll help safeguard your rights and interests as a retail merchant.

Generally, below are the different types of fraud associated with chargebacks:

  • Actual fraud – This type of fraud is committed when a certain fraudster uses a legitimate credit cardholder’s information, bought an item, and the merchant delivered the said order to the fraudster. From there, the real cardholder will see the charge on their statement of account and file a chargeback request with the issuing bank against the fraudulent purchase.
  • Merchant error or negligence – This type of fraud happens when the merchant failed to ship the order or shipped out a broken item or one that’s described differently from what was ordered. When the real cardholder fails to receive their order, they can request a chargeback against the merchant.
  • Friendly fraud – This type of fraud occurs when the legitimate cardholder files a chargeback request to avoid paying for the order involved or because there may be a household member who made the purchase in their name, they don’t recognize the transaction, and many more.

As you can see, chargebacks usually happen due to the different types of fraud mentioned above. In order to determine and detect them, using a fraud detection tool can be an excellent idea. It can help prevent unauthorized or fraudulent purchases from happening.

  1. Add Prevention Alerts

In addition to using a fraud detection tool, you can also manage your chargebacks more efficiently by using prevention alerts. These alerts allow merchants like you to refund their customers to ensure transaction disputes wouldn’t turn into chargebacks. This means that when you get an advanced warning of a transaction dispute, you’ll be able to stop the order fulfillment process and the costs of goods aren’t lost.

Unlike the chargeback data, prevention data alerts can be accessed two to five weeks earlier than the former. Therefore, it’s important to use prevention alerts to identify the issues earlier, take pre-emptive measures to reduce the risk, and handle chargeback disputes more efficiently.

  1. Modify Your Policies And Procedures

Once you’ve identified the chargeback issues, the next thing to do is to change your policies and procedures. When you do these modifications, you’re able to prevent the risks of dealing with chargebacks and their corresponding losses. However, before modifying your policies and procedures, it’s best to conduct A/B testing to identify the risk exposure, as well as the profit or loss.

If you’re a retail merchant, below are some policy or procedure changes you can apply to your business:

  • Adjust product prices which the customers feel is most reasonable but still generates sufficient profits. A/B testing is a way to understand and learn your audience on a deeper level.
  • Re-evaluate your return policy and come up with changes that allow you to get fewer chargebacks.
  • If you’re dealing with chargebacks marked as “canceled recurring billing”, consider changing your customer service policies and procedures as these may be the cause of the issues.
  • Make use of the best billing and payment practices to reduce chargebacks. These can include fulfilling refund requests promptly, reminding customers of recurring payments before charging the card, asking for the card security code, using 3D secure 2.0, and many more.

The Bottom Line

Indeed, dealing with chargebacks can be a frustrating experience for retail merchants like you. Without knowing what to do when these issues arise, your business may end up losing significant revenues to cover some chargeback costs.

Thus, to avoid these things from happening, follow the tips mentioned above and you can surely manage your chargeback issues efficiently and without hassle.

Interesting Related Article: “Ensuring a Secure Payments Experience“