The sad reality of eCommerce today is that you’ll still get chargebacks no matter what you sell.
And the reason chargeback is becoming increasingly popular among cardholders is the fact that once a cardholder files a dispute, banks see the merchant as guilty until proven innocent.
Merchants suffer significant losses due to chargebacks. In addition to losing money from a valid sale, retailers also lose money due to chargeback fees, shipping and fulfillment expenses, and other ancillary costs.
Just Google it. The numbers will make your head hurt.
- According to industry records, retailers lose almost $4 for every $1 charged back, with the average chargeback cost of a $90 transaction value reaching $190.
- Friendly fraud has been spiking by 41% every two years – and the cost of chargebacks stands at $117.47 billion as of this year, 2023.
Keep reading for battle-tested tips to protect your online store from chargebacks.
Why Do Chargebacks Happen?
There are three reasons why chargebacks occur: merchant missteps, criminal fraud, and friendly fraud.
- Merchant Missteps involve clerical errors like double entry, order handling mistakes in shipping and delivery, or substandard customer service. These addressable internal errors can lead to buyer frustration and eventual chargebacks.
- Criminal Fraud chargeback is when fraudsters steal a cardholder’s identity to make unauthorized transactions. And the cardholder seeks remediation with a chargeback, leaving the merchant with losses.
- Friendly Fraud is an intentional or unintentional abuse of the chargeback mechanism, either due to buyer’s remorse, misunderstanding with seller’s policies, or bare-faced greed. Friendly fraud is the leading cause of chargebacks.
Aside from knowing why chargebacks happen, understanding how to protect your business from such losses is of utmost importance. If we’ve learned anything from these past years of helping merchants protect their hard-earned revenue from online shoplifters, it’s the fact that specific actions can help you limit dispute exposure.
7 Tips to Protect Your Online Store from Chargebacks
Use the tips below to plug any revenue leak in your business.
1. Have a Clear Policy for Cancelations and Returns
The first step is to offer your customers the option to cancel or return their orders if they wish to do so. Sometimes, chargebacks occur when buyers cannot opt out of their subscriptions.
Studies indicate that 80% of cardholders initiate a chargeback because it’s more convenient than seeking a refund from the merchant.
Craft air-tight returns and cancelation policies and ensure your customers can readily find those guides. Working with ReturnGO, a returns management system, also helps you track and analyze returns data such as return reasons, return rates, and purchasing behavior to limit returns fraud.
2. Ensure Customers Can Quickly Identify Your Billing Statement
Sometimes customers file unauthorized transaction chargebacks because they don’t recognize the merchant’s billing statement or forgot about subscription packages. You can avoid such inconvenience with an excellent billing descriptor.
An excellent billing descriptor should display your business name, contact information, and website URL. Avoid generic or vague descriptors that might confuse customers. If you want to be fancy, you could take things slightly higher with automated pre-notification emails before charging customers. Such emails should include the bill amount, charge date, and what the charge is for.
3. Frustrate Online Shoplifters with Authentications
While implementing order authentication and anti-fraud instruments seems like an after-thought – something you can tack into the mix after securing the sale – it can be a lifesaver when dealing with fraudulent actors. Any unauthorized transaction you process will cost you at least 3x as much.
Follow industry best practices; obtain customer signatures, PINs, or CVV codes for Card-Not-Present transactions. And use anti-fraud tools like country code blocking, Blacklisting, velocity checks, and IP whitelisting on your website. You can also use pre-authorization holds to ensure the right person is making the order. It’s estimated that CNP fraud costs could reach $130 billion by the end of 2023. False declines, a significant headache for the eCommerce industry, drain between $118 to $331 billion from merchants in the U.S. alone.
4. Ship Orders with Tracking and Provide Insurance for Your Shipments
This should be second nature for all vendors selling physical goods. Ship high-value orders with insurance and tracking to ensure safe delivery. And provide your customer with these details so they can easily track the status of their shipment. Once the transaction is complete, obtain delivery confirmation for your records.
Some cardholders use chargebacks to recoup their money when they’re uncertain about the status of their order. You can avoid that by helping them track their order.
Another reason this point is crucial is that order tracking details and delivery confirmation are two vital pieces of evidence to present when the buyer claims they did not receive a delivery. And if you sell digital goods, you can keep track of download logs, time stamps, and device information to show the buyer accessed the software or service.
5. Educate Your Staff About Fraud Patterns
eCommerce fraud is on the rise. And as fraud leaves patterns, you and your workers are the first defense line for catching fraudulent activities. Educate your workers on fraud patterns and red flags. Have templates for processing higher-risk orders and ensure everyone on the team understands the risks involved.
For example, you could establish a process that if an order is suspicious or raises the risk level to a certain point, you do not accept it. And double-check entries to minimize clerical errors that can result in double billing.
Another standard due diligence to limit fraud exposure includes checking recurring transactions made to the same address but with different cardholder names or numbers. More so, if you notice multiple transactions charged to a single card within a short period or a decline code, request an alternate form of payment, such as a bank account transfer.
It’s equally best to refrain from splitting charges for a single order using multiple credit cards. And for new customers, avoid delivering goods to a post office box and verify the photo identification provided.
6. Pre-empt Disputes with Better Customer Service
While practicing excellent customer service will not deter scammers from trying to steal money from you, you’ll be sure that legitimate buyers will talk to you first before seeking remediation from their banks.
Provide clear and concise product descriptions, promptly address customer concerns or issues, have multiple channels for buyers to reach you, and pay attention to your social media mentions and DMs. Another thing we’ve seen our merchants do is constantly evaluate chargeback data with Chargeflow’s order insight to track down loopholes that might cost them money. Such proactive measures help you find cracks before scammers take advantage of them to rip you off.
7. Automate Your Chargebacks to Recover Disputes without Lifting a Finger
You know it; I know it: no matter how careful you are in preventing chargebacks, consumers will STILL try to misuse the chargeback system.
Aside from that, about 40% of chargebacks result from preventable internal issues. Unfortunately, many retailers lack the tools and resources to address these problems effectively.
With Chargeflow’s automated chargeback system, you can integrate your merchant account with the chargeback monitoring software to stay on top of your disputes. You’ll get timely alerts and emails whenever a customer disputes a transaction and detailed transaction data to help prevent fraudulent chargebacks and manage cases on your behalf.
The fun part of chargeback automation is that you prevent revenue losses and learn how to avoid missteps that lead to more cases. By simply clicking a few tabs on the dashboard, you program the system to understand your customers’ behavior and easily safeguard your sales.
If history teaches us anything, fraud goes through the roof with shifts in markets and global economies, as we see happening nowadays. Whether you’re just a mom-and-pop online store or a high-tech eCommerce vendor, these tips will help you protect your sales from chargeback losses. In the final analysis, it’s not how many sales you make but how much you retain at the end of the day that matters.
About the Author
Tom-Chris Emewulu is Chargeflow‘s Digital Evangelist. With 8+ years of digital marketing experience, he crafts compelling, data-driven SEO 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.