If you sell online, you know there are times when things can go wrong with order fulfillment or transaction processing, leading to a return or chargeback. These are standard realities of eCommerce business. It’s impossible to please every customer.
Plus, some customers now try to game the return and chargeback system for freebies. Avoidable merchant missteps leave you vulnerable to such con artists.
Estimates show that 90% of sellers report cardholder abuse of the chargeback mechanism as the most significant burden for their business. And up to 20 percent of returns annually are categorized as abuse or fraudulent – equating to $24 billion in losses for merchants.
When you do the math, the average merchant loses $10 to return fraud for every $100 of returned products accepted and at least $3 for every $1 charged back. Hence, this post will unveil 7 common mistakes merchants make that lead to returns and chargebacks.
7 Mistakes That Lead to Returns and Chargebacks
Even though most chargebacks are friendly fraud (i.e., an abuse of the chargeback mechanism), our internal data has shown that merchant mistakes make them largely susceptible to such cases. 20-40% of payment disputes result from merchant errors. Let’s walk through the common merchant mistakes that often trigger returns and chargebacks.
1. Poor Return Policies
Research shows that having a poorly crafted return and refund policy is the first merchant misstep that leads to returns and chargebacks. Estimates suggest that an unclear or misleading policy is the reason for up to 15% of all chargebacks. So, we recommend you review your policies and plug any loopholes that cost you money.
An excellent return and refund policy provides clear guidelines for returning purchased goods and services and the procedures for getting a refund from your company. It answers the questions:
- How, when, and under what circumstances can a buyer return an item?
- What types of orders are eligible for refunds?
- What kinds of refunds can be expected of you?
- And what is the expected timeline and channel for such remediation?
But beyond having such a document, you can turn returns management into a profitable opportunity with automated returns and exchanges. This gives customers hassle-free transactions and demonstrates your value for their satisfaction and positive shopping experience.
2. Substandard Customer Service
While maintaining strong customer relationships does not mean payment disputes won’t happen, it’s essential for business growth. When buyers are happy, they’ll likely talk to you before talking to their bank or card issuer.
Focus on establishing outstanding customer relationships from the first contact with your business. And continue optimizing customer experience at every step of the buyer journey. Customer service is an ongoing process – before, during, and after purchase. That requires comprehensive and regular employee training, as it improves your company’s fiscal health.
Leverage automation tools to remain available to customers 24/7 and proactively deal with customer complaints to prevent stress and dissatisfaction. That includes:
- Streamlining onboarding systems
- Reviewing orders before finalizing them
- Providing refunds when required
- Contacting the card owner when someone places an unexpected or large order
Prioritizing customer service helps you reduce unwarranted disputes from actual customers and improve customer retention and revenue. But beyond minimizing disputes, offering excellent customer service is equally fundamental to improving your conversion rates.
3. Confusing Billing Descriptors
Having complex billing descriptors is another chargeback-producing merchant misstep you must avoid. An excellent billing descriptor for an eCommerce site should clearly state your business name, website URL, and phone number. That way, customers can quickly identify your business on their payment card statement and contact you if they need assistance.
Note that there are two facets of a billing descriptor:
- The soft copy
- The hard copy
The former appears on the payor’s account for three days or more during the transaction authorization process, while the latter stays on the payor’s account statement following a successful transaction settlement.
While it’s reasonable to prioritize the hard billing descriptor, as they remain on the cardholder’s statement, you must also pay keen attention to the specifics of the soft copy as they’re the triggers of most chargebacks in this regard. A concerned cardholder who constantly monitors their financial details might mistake a bill without descriptive vendor and transaction details as fraudulent and hit you with a chargeback.
4. Highly Massaged Product Description
Now’s the time to check for an accurate representation of product and pricing information as the peak seasons draw even closer. That way, you can avoid expectation gaps that cause returns and chargebacks.
This is crucial because eCommerce transactions rely heavily on good faith. Unlike physical shops, where customers can readily touch and feel what they’re paying for before purchasing, online shoppers depend solely on the information you provide to make buying decisions.
With many brands competing for consumers’ eyeballs, it can be tempting to massage product descriptions and foil pricing information to win the game.
Instead, use excellent copywriting to answer customers’ questions. And provide multidimensional, high-resolution images or videos while making it clear to buyers what and when they’ll pay. If you offer discounts, apply that before, not after payment. Any other bill should come as a different payment.
5. Clerical and Documentation Errors
Eliminate all clerical and documentation errors with transparent and standardized procedures for handling transaction documentation. These include eliminating human error in data entry with quality assurance processes like double-checking entries. A simple typo in a customer’s order amount or purchased item can result in the wrong order being shipped or over-billing.
Maintaining consistent and organized records is vital for efficient dispute management. When you fail to establish standardized record-keeping procedures, you risk losing crucial information or misplacing essential documents that can help settle customer disputes.
File and keep track of pertinent details like delivery confirmations, receipts, and any relevant customer communication, as these form compelling evidence when the buyer files a chargeback.
6. Using Manual Chargeback Mitigation
Have you ever heard about The Uncanny Valley?
The Uncanny Valley is a term used to describe people’s unsettling feelings when humanoid robots and audio/visual simulations closely resemble humans in many regards but are not quite convincingly realistic. The concept of the uncanny valley is popular among game developers. They know that folks will be disenfranchised if the robots in their games don’t look like humans.
We bring that up because the reason chargebacks are so popular among cardholders is that you, the eCommerce merchant, may never know that a transaction will be charged back until the customer initiates a dispute.
If an order has apparent irregularities, you’ll have an uncanny valley – you won’t process the transaction. And scammers know that. So, they try their best to deceive you into processing the transaction before hitting you with a chargeback.
Thanks to the rise in Artificial Intelligence adoption, liar-buyers can effectively mask their intentions and automate several aspects of their fraudulent deeds.
If you’re using manual chargeback mitigation processes, you’ll most likely never pinpoint such nefarious activities. Yet, Chargeflow gives merchants and businesses tools to beat scammers in their own game.
With Chargeflow, you can track impending disputes before they escalate into chargebacks and recover such cases on autopilot. Instead of chasing your tail with manual dispute mitigation, you can stay ahead of con artists and recover false chargebacks with insights from over 50 data points. And the success-based pricing means you only pay for cases won.
7. Working at Cross-Purposes with Regulators
The card brands are constantly changing their payment processing rules. As part of their fiduciary responsibility to cardholders and the entire ecosystem, each organization has developed unique guides and standards that merchants must adhere to. These rules cover various aspects of card acceptance, including transaction processing, chargeback dispute processes, refund, and card acceptance policies.
Working at cross-purposes with any of the set standards will mean your chargeback reversal request cannot yield the expected results. So, it’ll be helpful to familiarise yourself with the rules of the specific card network you work with.
For example, the card networks require merchants to obtain proper authorization before processing payments. That involves verifying card validity and funds availability. Not abiding by these standards will result in the loss of chargeback dispute by default.
Final Words on Common Mistakes that Lead to Returns and Chargebacks
You should anticipate transaction disputes if you sell products or services to consumers. And you must be aware that most of these cases will be pre-meditated and meritless. However, a few of the disputes will be due to the issues we’ve discussed above.
By fixing your policy gaps, refining your customer service, optimizing your billing descriptors, enhancing your product description, developing proper quality assurance protocols to eliminate clerical errors, automating your chargebacks, and following industry best practices, you can effectively pre-empt chargeback losses for your business.
Don’t wait until you’re in the card network monitoring program to take action. Take precautionary measures today and safeguard your business.
About the Author
Tom-Chris Emewulu is Chargeflow’s Digital Evangelist. With 8+ years of digital marketing experience, he crafts compelling, high-converting, high-intent, data-driven, SEO-friendly articles that put brands on page 1 of Google search. Forbes, DW, Business Insider, Businessss2Community, and many other publications have featured his works. You can find him on Social Media via @tomchrisemewulu.
