While customers should only file chargebacks if they cannot resolve the issue with the merchant, 80% of chargebacks were filed because the consumer didn’t have time to request a refund from the seller. In 2017, $31 million was lost due to chargebacks, and even more in fees. Most companies just accept chargebacks because they feel ill-equipped to contest them. Fighting chargebacks requires excellent recordkeeping, which most businesses lack.
With Black Friday and Christmas being such big shopping occasions, the likelihood of chargebacks grows exponentially. While there is no fool-proof way to prevent them, there are certain strategies businesses can implement to reduce the likelihood significantly.
What is a chargeback?
A chargeback is the process by which a bank returns money to a cardholder who has filed a dispute against a merchant. Chargebacks are a common way cardholders to get back their money from merchants when they received faulty or wrongly-advertised product, in the event of fraudulent charges, or if they simply want a refund.
Not only do issuing banks refund the cost of the item to the cardholder, but the merchant also spends millions on fees. In fact, every $1 in chargebacks actually cost $2.40 in associated fees, effectively more than doubling its financial impact.
Despite the cost of chargebacks, businesses don’t often fight them because many businesses lacks necessary documentation to prove that a purchase was intentionally made, especially in the narrow window of time allotted to gathering and submitting the documentation. In most cases, merchants only have one to two weeks to file the contesting paperwork. Most businesses don’t have the time or employ the technology needed to strategize around which disputes to contest and which to leave be. But there with better recordkeeping and sufficient conspicuous notice, they can prevent and fight credit card chargebacks more efficiently.
Preventing chargebacks
Here are some techniques for preventing chargebacks this holiday season:
Provide Conspicuous notice of charges
Companies that fail to provide conspicuous notice of auto-renewal leave customers confused about charges to their account and eager to initiate chargebacks — for example, if your business does auto-renewals. Transparency goes a long way in helping merchants keep their money.
Including language about your auto-renewal in the text below/near your sign up or check out button is another conspicuous way to notify customers that will be charged multiple times. This way, before they complete their purchase, they have a chance to reconsider, or at least become aware of recurring charges.
Design enforceable agreements
Rather than hide crucial terms about your auto-renewal policy in your clickwrap Terms of Service (which may or may not be enforceable), make the auto-renewal clause its own clickwrap. That is, during the sign-up or check-out flow, in addition to having users accept your Terms and Conditions and Privacy Policy, include another clickwrap agreement which users check to indicate that they understand they are signing up for a recurring fee.
How to fight chargebacks
Though implementing these changes can help reduce chargebacks significantly, there is no way to get rid of them completely, especially because of the prevalence of “friendly fraud.” But rather than just accepting all the chargebacks disputes brought against you, be prepared to fight them via representment with excellent recordkeeping.
Representment is the process of contesting a chargeback. In order to successfully dispute a chargeback, merchants must be prepared to present compelling evidence proving that the purchase was intentional and that there was no error on your part. Evidence includes:
- Information about the credit card
- Order forms
- Data stamps with IP addresses that can be cross-referenced with past transactions.
- Information about any terms or contracts accepted as part of the checkout process.
However, depending on the credit card or bank, merchants typically have less than two weeks to gather sufficient evidence to challenge a chargeback. Because the turn around time is so small, most merchants don’t bother to challenge the dispute. This is why it is crucial that businesses have robust recordkeeping with the ability to pull records quickly. Without these records, you will have a hard time recouping the money you’d lose to chargebacks.
Eric Prugh is the cofounder and Chief Product Officer at PactSafe, where he oversees product, customer success, solutions engineering, and partnerships. PactSafe is a SaaS company that securely powers high-velocity acceptance for contracts. @PactSafe
Chargeback stock photo by koblizeek/Shutterstock
