Credit and debit card chargebacks are a major headache for merchants of all sizes. The cost you money in many ways, eat up your valuable time, tax your company’s scarce resources, and can endanger your good standing in the community. The truth of the matter is that chargebacks happen for all sorts of reasons, including bank errors, consumer fraud, third-party hacks, merchant mistakes, and non-consumer fraud.
Unfortunately, fraud is rampant in the e-commerce segment of the economy and growing rapidly. In fact, the single largest sub-category of e-commerce fraud is chargebacks. .
It’s important for merchants to know that many customer-initiated chargebacks take place because consumers are either misinformed or scared. When a person realizes that a hacker or fraudulent individual has accessed their credit or debit card account, they typically panic and contact their financial institution. Or, your customer might see your parent company’s name on a statement, not recognize it, and initiate a chargeback. The scenarios are endless.
What can you do to rein in the many problems connected to reversed charges, problems that are often completely outside your control? The answer is minimization. In other words, be pro-active in order to reduce the number of chargebacks to the lowest possible level.
Step one involves five techniques to reduce credit card processing chargebacks. Step two is setting up a prevention system of another kind, and includes four additional ways to avoid defective transactions.
What are Chargebacks?
Any charge on a payment card that is reversed or returned is considered a chargeback. The situation arises when purchasers dispute the listed transaction as it appears on their monthly account statement. Even though the word “charge” is used in the term, chargebacks can pertain to either charge cards or to standard debit cards. The formal process of reversal is usually begun by one of two parties: the issuing bank or the merchant.
In most cases, merchants incur a fee when a purchase transaction is reversed, i.e., “charged back.” However, the law that governs chargebacks is different, depending whether a debit or credit card was used. For debit cards, the U.S. EFTA (electronic funds transfer act) governs. For credit cards, the Truth in Lending Act is the primary legal framework.
All sorts of terrible consequences lurk in the shadows for merchants who receive too many chargebacks. A few include the inability to accept certain kinds of credit cards, angry customers, the inability to get or keep another merchant account, and hefty fines. No one who operates a business wants any of those things. When you stop to consider the fact that nearly 80 percent of all customers pay with credit card, it’s easy to see how important it is to avoid defective charges.
Every merchant should commit to memory the four categories of chargebacks. They are:
- Fraud-related: The customer says that the purchase was not authorized by them or it was made by an identity-thief.
- Quality-related: The customer says, “I never received the services or products.”
- Technical: An error in bank processing, an account with insufficient funds, or a payment authorization that has expired.
- Clerical: A refund was not issued, a legitimate bill was processed in duplicate, or a bill was processed for the incorrect amount.
Step One: Minimize Chargebacks With 5 Techniques
Being informed and pro-active will go a long way toward reducing chargebacks. The best way to go on offense against returned credit card charges is to follow a plan that includes the following five actions:
- Provide Excellent Customer Service: When you have good relationships with your clients, they will tend to contact you whenever they see a potential problem with a charge.
- Make It Easy For Customers to Get Refunds: Many of the world’s largest merchants use this effective technique. It’s about making returns and refunds simple and fast. When your customers know that all they need to do to get their money back is call or visit your store, they will seldom initiate chargebacks via their financial institutions.
- Be Excruciatingly Transparent: When it comes to authorization amounts, subscriptions, and charges, never leave your customers in the dark. Send email notices when subscription charge is about to occur on a particular day of the month. Also, let buyers know the exact amounts that will show up on their card statements and whether any “hold” amounts are in effect for a certain amount of time.
- Get Professional Help: Hire a professional payment technologies organization that can help your company fend off credit card processing problems of all kinds.
- Have Policies for Exchanges, Returns, and Refunds: Don’t make up policies as you go. Have clear, written, publicly stated policies in place concerning refunds, all types of exchanges, and product returns.
Step Two: Four Extra Ways To Deal With Defective Transactions
An ounce of prevention is worth a pound of cure. That old saying applies perfectly to the way you can avoid having ACH-related problems like blocked payments and more. Here are a few simply prevention methods that pay big dividends for merchants:
- Be the go-to source of help for your customers: Do whatever you can to encourage customers to contact you, rather than their banks, when they dispute a charge. A simple way to achieve this goal is to put your phone number and company name on every printed receipt or e-receipt that goes to a customer.
- Be accessible! Have a high-quality voice system in place so every phone call is answered. Be clear about how to re-contact you for further information, what your hours are, and what the full name of your company is.
- Be transparent: Make sure every entry on your statement includes the correct name of your business.
- Be helpful: Always let your customers know how the transaction will appear on their card statements.
Strategies Work For You
Unfortunately, there’s no way to eliminate chargebacks from your life as a merchant. They’re part of the cost of doing business, like inflation, rising tax rates, and keeping a competent work force in place. But the tactics listed above are an excellent way to rein in the ever-present chargeback threat and minimize your inconvenience.
At Metro Payment Technologies, we have many solutions for merchants who want to be as pro-active as possible and bring their returned charges to the lowest possible level. Not only do we offer payment terminals of all kinds, top-notch POS systems, and accurate e-check processing, we also work with merchants who want payroll support, PCI compliance guidance, customer support solutions, and comprehensive chargeback handling.
If you’d like to know more about how we can deliver strategies that can work for your company, feel free to call toll-free at 1-800-771-3719 or email us directly at email@example.com. Or, to find out a bit more, visit our website to see the entire list of services and products we offer. Don’t let credit card processing chargebacks get you down. We’re happy to help and always look forward to hearing from merchants who want to bring this common problem under control.