Are you a small business owner who is looking to avoid paying chargeback fees by whatever means necessary? That task can be extremely difficult when you accept credit card payments through a website or a brick-and-mortar store. Unfortunately, chargebacks are an inevitable reality for merchants that depend on digital payments. They can be devastating to your bottom line and waste your valuable time if you choose to dispute them. Today we will share with you some actionable tips you can implement immediately to avoid unnecessary chargebacks and extra bank fees.
#1 – Gain A Complete Understanding of Your Vendor’s Guidelines
The very first step for a small business owner is to study and learn the guidelines that your payment provider has established regarding the chargeback process. Chargebacks were originally put in place to protect the consumer in case they observed transactions that they didn’t recognize. However, as the years have gone by consumer fraud has increased steadily to the point where there is large-scale abuse. The number of dishonest customers who file false disputes now represents an estimated 86% of all transaction disputes. With these types of numbers, it makes sense to know exactly where you stand with your vendor.
No matter who your vendor is, there are rules and policies that Mastercard, Visa, Discover, and American Express have set in place. For example, the standard time frame for a consumer to file a chargeback is 60 to 120 days after the date of purchase. The standard time frame for a merchant to dispute that chargeback is 45 days. During that time, the merchant bank will conduct an investigation and come to a decision. If they determine that arbitration is needed, it will take much longer to conclude.
#2 – Tell The Customer To Contact You First
This is an important step that most business owners know to do but don’t do consistently with every interaction with the customer. If the customer does not believe that you will provide a solution for a dispute, they will not hesitate to file a chargeback with their credit card company. So the smart thing to do is get in front of the problem before it even occurs. Here are a few tactics you can use to get your customers to contact you first.
- Set up an email follow-up series to ensure they are satisfied with their purchase and remind them that you are there for them if they have an issue.
- Offer free return shipping to the customer. While shipping may seem expensive, the chargeback fees will be higher in the long run.
- Use a messaging system that allows the customer to contact your business through multiple methods such as instant messaging, chatbots, email, and phone. The more convenient you make it for the customer to reach out to you, the better the chances are that they will contact you first.
- Publish testimonials from customers who have already experienced how easy your return process is. Positive reviews carry a great deal of weight in the minds of your customers, so don’t miss out on the opportunity to use them effectively.
- Publish a Frequently Asked Questions Page designed specifically for the return process. If damage control is your ultimate goal, provide your customers with the answers they need beforehand.
#3 – Add Fraud Protection Measures To Your Website
One of the biggest mistakes you can make as a business owner is not updating your website regularly. Hackers and potential fraudsters take advantage of bugs in outdated software, so website security should be a major focus. If the data on your website is not encrypted, take the time to find the best encryption software for your business. This is an easy way for an eCommerce merchant to reduce fraud.
After you’ve become confident that your website is secure, you should consider implementing one or more of the fraud prevention tools that are available to merchants. These types of systems and tools are designed to prevent tech-savvy fraudsters from using stolen credit card numbers to make purchases on your website. Identity theft is still a major problem and a serious threat when it comes to potential fraud.
Here are just a few of the tasks these tools can do to protect merchants:
- Verify that the customer is the actual cardholder through various identity verification methods.
- Verify billing addresses to confirm that the customer is the actual cardholder.
- Share transaction data with issuing banks and card networks to incorporate their fraud prevention protocols as well.
- Monitor high-risk transactions through a rule-based scoring system that rejects cardholders if they are deemed to be a serious risk.
- Generate risk scores through AI-powered software that analyzes transaction data to identify high-risk transactions and prevent fraud.
To protect your business from potential fraud, you should seriously consider implementing these measures as quickly as possible. Companies such as Sift, Kount, 3-D Secure, and Bolt are well established. All of these companies have been in the industry for several years and are considered experts at what they do. We suggest you investigate all of these companies to find the right solution for your business.
#4 – Actively Monitor Your Chargeback Ratio
Your chargeback ratio is simply the number of chargebacks divided by the total number of transactions. Credit card companies will label you as a high-risk merchant if your chargeback ratio is consistently over 0.9%. The consequences of having a high chargeback ratio can be higher bank fees or termination of your account. Merchant service providers monitor this ratio every month so be sure you do it as well.
If you find that your merchant provider consistently calculates chargeback ratios that are higher than your own, it’s time for you to consider another vendor. Remember your goal is to not only avoid chargebacks but to learn how to avoid high processing fees as well. As a small business owner, your objective is to make as much money as possible while keeping expenses down. So overpaying on credit card processing fees is unacceptable.
#5 – Use The Chargeback Resolution Process To Your Advantage
Did you know that if there is $50 or more of fraud the cardholder is not legally responsible? That means either the cardholder’s bank or the merchant will be stuck with that charge. Therefore, it would be in your best interest to be proactive to protect yourself against chargebacks. Start by monitoring transactions and examining each chargeback to see why it occurred. The current chargeback resolution process doesn’t aggressively measure fraud on the customer’s end, so be sure to keep all transaction receipts and records on file.
Here are the 7 steps in the standardized resolution process for chargebacks:
- The customer requests a refund from their credit card provider.
- The credit card provider reviews the dispute and assigns a reason code to the chargeback.
- All evidence is collected and the bank conducts a full investigation to determine if the chargeback is valid.
- If the results of the investigation are deemed to be valid, they are sent to the merchant’s credit card processing company.
- The credit card processor notifies the merchant and provides all information regarding the chargeback for them to review.
- The merchant submits any evidence it has to overturn the chargeback.
- The final decision is made by the customer’s credit card company based on the evidence presented.
In today’s online environment, chargebacks from credit cardholders are difficult to manage due to fraud. If they are not monitored on an everyday basis, you will pay higher transaction fees. So take heed of the tips we’ve shared today and be proactive!