By Whitney Troxel
Chargebacks are an unavoidable part of doing business, but they don’t have to be a source of frustration. They happen for a variety of reasons, ranging from fraud prevention to simply buyer’s remorse. Regardless of the cause, businesses must take steps to prevent them and respond appropriately if one does occur. In this article, we’ll look at what chargebacks are, common pain points businesses face with chargebacks, and the best practices to deal with them.
What is a chargeback?
A chargeback happens when a customer challenges a financial transaction on their credit card statement and requests reimbursement from the bank. The bank examines the complaint before deciding if it is valid, then returns the money to the consumer while also charging fees to the business for initiating this process.
Why do chargebacks happen?
As we mentioned before, chargebacks happen for a variety of reasons, not all of them are legitimate. Some common causes of chargebacks include the following:
- Fraud — When someone uses a stolen credit card or otherwise accesses money without the proper authorization.
- Processing Errors — Sometimes the cardholder may not recognize a transaction due to an error in processing, such as incorrect information or missing details.
- Buyer’s Remorse — Customers may regret their purchase and ask for a refund even though they don’t have a good reason to do so.
Just because a customer requests a chargeback doesn’t mean it will be approved by the bank. Banks look at the reason for the chargeback, like if the credit card was stolen, if there was a mistake in how it was processed, or if the customer just changed their mind about buying something. If the bank doesn’t find a valid reason, they will not approve the chargeback.
What are the consequences of chargebacks?
Chargebacks are meant to provide a safety net for consumers if they are victims of fraud or other nefarious deeds, but they can cause some major issues for businesses, including the following:
- Financial Loss — Chargebacks result in the business losing the initial sale and also having to pay a chargeback fee, which can range from $20 to $100. This can add up quickly and result in significant financial losses.
- Time and Resource Drain — Each chargeback must be investigated and a response must be provided to the bank. This can be a time-consuming and costly process for merchants, taking away valuable time and resources that could be used to grow their business.
- Risk of Losing Merchant Account — Businesses may face the risk of losing their merchant account or having their account frozen if they have a high number of chargebacks.
- Administrative Burden — The process of dealing with chargebacks can be administratively burdensome, requiring businesses to provide evidence, communicate with both the customer and the bank, and respond in a timely manner.
How do you prevent chargebacks?
There are a number of things that merchants can do to resolve issues with chargebacks and minimize the impact on their business.
- Prevent chargebacks from occurring in the first place. It is essential to provide accurate and clear billing information, so that customers are aware of their purchase agreement. Any customer inquiries should be attended to promptly and professionally.
- Invest in fraud prevention tools and technologies. Look into AI driven tools — like Kount — as well as address verification systems (AVS) and card verification values (CVV) to verify customer information and reduce the risk of fraudulent transactions.
- Establish efficient and effective chargeback processes. Streamline your chargeback process and increase efficiency by implementing an automated chargeback management system. This can simplify the response time to any incoming chargebacks, making it a more manageable task.
Find the right payment processor and solution.
Not all payment processors are created equal. The world of payments is complex, fragmented, and ever-changing. Each processor has its own way of dealing with these complexities. Some focus on just providing payment processing and don’t provide any additional software or services. Others are known as full-service providers and provide one solution for the several fragmented aspects of payments. There are pros and cons to each type of provider, so it’s up to you to determine what you need.
If your business deals with chargebacks on a regular basis, we strongly encourage you to look into a robust payment solution that has chargeback management services included. It is well worth the investment and will save you countless headaches now, and in the future.
Nexio’s chargeback management
Nexio provides payment infrastructure and strategy for multiple types of businesses. Our platform simplifies chargeback management by centralizing transaction reporting and dispute processes into a single, easily accessible dashboard. Receive instant notifications, analyze chargeback details, and electronically dispute chargebacks.
Contact us for an obligation-free consultation to see what Nexio can do for you.