13 Steps to Dramatically Lower Your Chargebacks

At Soar Payments, we speak with dozens of eCommerce and Card Not Present merchants every day. And almost all of them (at least the smart ones) know that they need to take chargebacks seriously from the start. What they’re less clear on, is how exactly to do that. So, in this article we’ll take a minute to review some universally effective ways to lower your business’ chargeback ratio in the short, and in the long term.

1. Provide Excellent Post-Sale Customer Service
This one is easy and intuitive. Many chargebacks (approximately 37%) are due to a customer wanting to cancel a service or return a product. Not all of these can be eliminated due to excellent post-sale customer service (e.g. reaching out via email or phone to confirm the customer was satisfied and / or providing detailed return instructions with the package), but a surprisingly large number can be. The Downside: Effective post-sale customer service means empowering your customer service team to issue refunds and settle customer disputes (usually at a cost to you the merchant) on the fly and sometimes outside of the company’s stated refund policy. That will negatively impact your bottom line, of course, but given how costly and time consuming the chargeback process is, for most businesses the tradeoff is well worth it.

2. Monitor for Duplicate Transactions
With both eCommerce and MoTo transactions, there is a surprising number of inadvertent duplicate transactions which occur. This can be as simple as a customer service agent pressing the ‘process payment’ button twice, or the customer hitting the back button in their web browser and resubmitting their card information. Typically, your payment gateway can be setup to identify and automatically block duplicate transactions which occur within a short time window. Doing this effectively will only yield a 2-3% reduction to the number of chargebacks your company incurs, but because you’re virtually guaranteed to lose any duplicate transaction chargeback dispute, they carry an outsized impact on your bottom line and cash flow.

3. Clearly State Your Refund Policy
A large percentage of ‘friendly chargebacks’, that is, chargebacks where the customer legitimately authorized the charge but later disputes it, are caused because customers are attempting to return a product and either don’t know the refund policy, or find it too burdensome to comply with. To minimize this form of friendly chargeback, a key is to have a clearly stated (on both the product description page, the checkout page and the customer’s receipt) refund policy that is easy to understand and comply with. And for those chargebacks that still occur despite a clearly stated and disclosed refund policy, you’ll be in a much stronger position to win 80-90% of those disputes as long as you’ve complied with the above.

4. Refund Quickly and Consistently
A small but easily avoidable type of chargeback that particularly afflicts card not present and eCommerce merchants is “credit not issued” chargebacks. These are situations in which you and the customer have agreed to a refund, but the customer claims the refund was not issued. Most often, this is because the customer fails to understand that a refund takes 3-7 business days to appear as a positive balance on their credit card statement even when its initiated immediately. To minimize this type of chargeback, make sure that any refunds are accompanied by a detailed electronic receipt that clearly shows the amount being refunded, the card it was refunded to, and that it will take 3-7 business days for the refund to be reflected on the cardholder’s credit card statement.

5. Cancel Subscriptions / Rebilling Appropriately
One of the main reasons subscription businesses are considered high risk is because they can generate so many chargebacks if the business doesn’t take responding to, and terminating recurring billing agreements seriously. In fact, roughly 19% of all chargebacks are due to customers seeking to cancel a recurring bill.

One of the easiest ways to dramatically reduce this type of chargeback is to send an electronic receipt 24-48 hours prior to a recurring bill being transacted. This will give the customer an opportunity to call and cancel before the charge occurs. But at a minimum, make sure that you provide a convenient method for cancelling recurring billing charges. And upon cancellation, the customer should be sent a detailed electronic receipt confirming the date of the cancellation and that no further charges will occur or services provided.

6. Create Detailed Product / Service Descriptions
One of the largest categories of chargebacks is called ‘Product/Service Not as Described’. These are situations, obviously, where the customer is claiming that the product or service delivered wasn’t as advertised. And because the chargeback system generally favors the merchant, any ambiguity in the product or service offered is usually adjudicated in favor of the customer. Therefore, to minimize this category of chargeback, make sure to have as detailed of product / service descriptions as possible. For physical products in particular, offering a video or 360 degree view of the product has been shown to reduce ‘Product Not as Described’ chargebacks by over 60%.

7. List Convenient Contact Information
Nobody likes talking to disgruntled customers. However, avoiding the problem by simply creating a contact form on your website as opposed to offering a direct email and human attended phone number is a surefire way to generate more chargebacks. Remember, the largest category of chargebacks are customers seeking a refund or redress with a problem and turning to the chargeback system as opposed to your company because they find the chargeback system more convenient. Consequently, you can dramatically reduce this category of chargebacks by making it easy for the customer to contact your business to discuss obtaining a refund, handling an exchange, or otherwise dealing with the customer’s issue as easy as possible.

8. Use Clear Shipping Policies
If you’re shipping a product, having the product arrive after the expected arrival date, or leaving the customer in the dark as to when a product will arrive is a surefire way to cause a number of chargebacks. Instead, make sure you have a reasonable shipping arrival window stated on your checkout page and the receipt. And secondarily, try to integrate a shipping tracking code onto your receipt. Finally, if a delivery is significantly delayed, affirmatively reach out to the customer and offer them a few proactive options to resolve the situation (e.g. a refund, or substituted item) before a chargeback occurs.

9. Provide Regular Status Updates
If you offer a product or service that is delivered in more than one increment or over time, make sure to keep the customer informed as to the progress of the order throughout the process. These can typically be automated emails generated by your CRM, but leaving customers in the dark as to how the process is going will almost certainly increase your chargeback ratio.

10. Use Clear Payment Descriptors
A payment descriptor is the phrase that appears on a customer’s credit card statement next to your charge. A surprisingly large percentage of chargebacks are due to the customer claiming that they do not recognize the charge (aka
‘No Authorization’). While some of these chargebacks are simply friendly fraud in disguise, a significant number are legitimate.

You can reduce ‘No Authorization’ due to the customer not recognizing the charge by making sure that your payment descriptor matches the name, service or product that your customer knows you as. That is to say, rather than choosing your company’s legal name, pick a name or phrase that will be immediately recognizable to the customer. Additionally, consider adding your customer service phone number to the end of your credit card descriptor, to make contacting you with questions even more convenient for a confused customer. And finally, make sure any electronic receipts state “Note: Our billing name on your card statement will be _______.” That way, even if the customer never reads that line, when they search their email later with the payment descriptor in an attempt to identify the charge they’ll see that it was legitimate.

11. Manually Review Suspicious Orders
Very large transactions, very small transactions (surprisingly), high frequency transactions, foreign transactions, transactions where the customer has opted for a very fast delivery, and transactions in which there is a mismatch between the billing and shipping address are all indications that a charge may be fraudulent. If fraudulent transactions are permitted to be processed, the vast majority will ultimately result in a chargeback.

To prevent these, make sure to configure your payment gateway to flag suspicious transactions for manual review and block altogether the most suspicious transactions entirely. And then attempt to confirm flagged transactions over the phone prior to processing. Finally, if a transaction is confirmed fraudulent after the payment has been processed, immediately issue a refund and (to the extent possible) halt delivering the goods or services in an effort to avoid an eventual chargeback.

12. Use CVV and AVS Match for MoTo Transactions
A large number of fraudsters who have stolen credit cards do not have the appropriate physical address associated with the card, nor the CVV code. To prevent these transactions (almost all of which will result in a chargeback), therefore, you can configure your payment gateway to require a CVV (the 3 or 4 digit code) and AVS (either the whole address or just the zip code) for all payments taken over the phone or via mail. You can use this added protection on a limited basis for eCommerce payments as well, but a surprising number of legitimate customers enter this information wrong, leading to a large number of false positives. So consider limiting the requirement to only particularly large or suspicious transactions.

13. Enable Chargeback Alerts
Despite your best efforts, if you are a MoTo or eCommerce merchant, you will likely still incur some level of regular chargebacks. Chargeback alerts offer one final means of eliminating 30-40% of those remaining chargebacks that occur. Chargeback Alerts are simply alerts that a customer has initiated a chargeback against your company. And they provide you with a 48 to 72 hour window in which, should you choose, you can fully refund the customer, and by doing so avoid the chargeback process entirely. The downsides are obvious, for Chargeback Alerts to be effective, you need to be willing to issue a full refund to the customer. Moreover, only about 30-40% of potential chargebacks are identified, as the system relies on credit card issuing banks to participate in the program (of which only about 30-40% currently do). Despite its limitations, however, this can be a valuable tool to automatically further reduce potential chargebacks for a business by a significant percentage.

Conclusion
For eCommerce and MoTo merchants, being vigilant about minimizing the incidence of chargebacks is largely about understanding the problem, taking it seriously, and taking the time to put into place company policies and procedures that have proven over time to be effective. Using the universally applicable steps above, a high risk merchant can dramatically reduce the quantity of chargebacks received, and increase their winning percentage for those few that still occur.

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Bradley Martin
Bradley Martin
Chief Marketing Officer at Soar Payments
Brad Martin, editor of the ‘High Risk’ Blog, is a payments industry expert with a particular focus on writing about high risk merchant services industries and the challenges that high risk businesses face. Previously, Brad managed business development for a US based low risk credit card processor.