chargebacks

Chargebacks can be a serious disturbance to any business. Not only is your payment processor going to debit your account right away, but your business also gets charged an additional chargeback fee.

In 2016, payment processing company Beanstream processed nearly a million dollars in chargebacks. While merchants should always be stay informed about chargebacks, there is also a seasonality to them. With the holidays, merchants can expect to see an increase in chargebacks during January and February, after the holiday season.

It can be easy to point the finger at the payment processor when they have to debit your account, but it is important to remember the chargeback is still being raised by the customer. The good news? You and your payment provider can be proactive in stopping them.

Let’s start with the basics. What is a chargeback?

The chargeback process begins when a customer files a complaint with their card issuing bank regarding a fraudulent or suspicious charge on their statement.

There are many different types of chargebacks, but the four most common are fraudulent, credit not processed, item not received, and technical.

  1. Fraudulent. The customer believes that someone else used their card to charge the transaction in question.
  2. Credit not processed. The customer returned the product(s) they ordered and never received the agreed upon refund or credit.
  3. Item not received. The customer never received the product(s) they ordered.
  4. Technical. There was a technical issue during checkout. For example, the customer was charged twice for a single purchase.
As the merchant, if you decide to dispute the chargeback, it can take anywhere between six weeks to six months for resolution. This is a significant and unproductive use of your business resources. Further, if you receive a lot of chargebacks, your account can be cancelled and flagged as fraudulent.

The average chargeback rate fluctuates based on industry and can be vastly different within each industry as well. Some businesses have to be more proactive at combatting chargebacks than others.

  • Chargeback rates are often higher with businesses that are collecting payment in advance of the product or service being received, or when the payment is being collected online.
  • It can be product-specific as well. High demand items with higher price points are often targeted by fraudsters which can lead to higher number of chargebacks.
  • Services, such as restaurants, where payments are made upon delivery of goods, tend to have a much lower chargeback rate.
chargeback-chart

The standard chargeback rate by industry. Source: Signifyd 

Strategies for combating chargebacks

Be proactive

Make it very easy for your customers to find information. At minimum, your website should have:

  • Clear descriptions and images of your products and services
  • A detailed and easily found return and refund policy
  • Customer service contact information
These three things will help you against the credit not processed and item not received type of chargebacks. Usually, customers raise a chargeback as a last resort, so if they can get in touch with your business, a simple refund will often appease them.

If you deal with a lot of international orders, be sure that you also have:

  • The business location clearly displayed
  • Their local currency being displayed
  • Export and shipping restrictions
International orders are a great way to grow your business, but they are also much riskier. If you do not display your customer’s local currency they may get confused about the amount they are paying and when the amount does not align on their bill they might issue a chargeback.

Be watchful

Being diligent can be much trickier than being proactive. Being diligent means you are watching for the activities often associated with chargebacks. Many payment processors have become quite clever at detecting fraud. Here are a few transactions that should raise your eyebrows:

  • Shoppers placing large orders without preference for size, color, make, or model of goods/services
  • Unusually high transaction amounts
  • Existing shoppers who suddenly order a substantial volume of goods/services
  • Single customers that provide more than one card to cover an order or set of orders
  • Shoppers that order more than once in a given day
  • Multiple transaction attempts with a failure at the first attempt
These can be legitimate transactions, but they can also be fraudulent. Being on the lookout for this behavior, as well as having additional safeguards in place like address verification (AVS), asking for CVC codes, and adding velocity controls can help prevent chargebacks. Every business will have to deal with chargebacks in one way or another. Being proactive and watchful will allow you to focus on growing your business, not spending your time disputing with customers. If you have not done so already, look to your payment processor and inquire about fraud tools that can help prevent chargebacks!

 

rstewartAbout the Author

Ryan Stewart is Head of Product Development, North America for Beanstream, a Bambora Company. He is passionate about payment products and also the dynamic payments industry, where he has lead the rollout and launch of many products.

 

 

About Beanstream

Beanstream is a leader in the payments space, processes over 30% of all e-commerce payments in Canada. With the largest suite of payment tools in the industry, including a wide wealth of fraud tools. The typical Beanstream merchant has a chargeback ratio under the industry average of 4.55%.