Chargeback Prevention

Chargebacks are reversals of previous payments received from your customer, and as much as businesses don’t like them, they are a necessary evil for any merchant accepting credit and debit card payments.

Chargebacks were initially designed to protect customers paying with their credit and debit cards in case the transaction goes awry, for example, when the items or services they purchased were never delivered.

However, some people started to abuse this form of protection by claiming they have never received a product even if they have – it’s for this reason that many merchants consider them a burden. In case of a fraudulent chargeback, not only will you lose the product you provided, but also the money the customer paid for it, as it will go back to their bank account.

When a chargeback is received, the customer is directly requesting for their bank to forcibly return the money – without the merchant’s authorization.

Once a chargeback occurs and funds return to the customer – the merchant is then notified of it happening. If the merchant decides to fight the chargeback, typically an investigation ensues where one is required to provide various details about the specific transaction in question.

It is a tedious and cumbersome process that can take costly staff hours away from more critical tasks – and in many cases, unless you have solid proof that the service or product was delivered, or you have an expert team working for you like the one at MyPaymentSavvy, the chargeback is still accepted in favor of the customer.

A chargeback cannot be filled just because – there has to be a valid reason behind it. Some of the most common ones include:

• Cardholder disputes the quality or the delivery of merchandise
• An amount charged was incorrect
• Fraudulent activity occurred
• The transaction was not authorized (a common example here would be a transaction made by a family member) or proper procedure not followed
• A processing error occurred during the sale

When a customer requests a chargeback, the bank will include a chargeback reason code, which is essentially an alphanumeric code that tells you why the customer decided to dispute a charge. Depending on the card scheme, chargeback reason codes can, and most likely will differ – something you should be aware of if using services of several card providers.

No matter the industry, chargebacks cannot always be avoided entirely. High-risk merchants must ensure they have systems in place to keep chargebacks minimal – in most cases, having a chargeback ratio of over 1% on a monthly basis can be grounds for having your processing account terminated.

Fortunately, there are steps merchants can take to prevent them. Understanding the payment cycle and the proper documentation needed when processing a transaction are critical components of reducing your over chargeback ratio.

• Make sure your merchant descriptor – the company name and customer service number appears on your customer’s banking or card statements – is easily recognized by your consumer. Your descriptor may not be your public business tradename but instead, your legal business name that is not known to the customer. This causes customer confusion and raises the possibility of a chargeback occurrence.
• Respond promptly to any customer inquiries or concerns. Make sure to keep detailed records of transactions and any required signature authorization to make fulfilling this request simple. The sooner the consumer is shown proof of their valid and authorized payment, the less likely they will request their bank to refund their purchase via a chargeback.
• ALWAYS get an authorization! While this seems like a simple and obvious way to prevent chargebacks, the advice is often ignored. Payment authorizations can include recorded phone calls, signed receipt, e-Signature documentation, or completed payment form.