Chargebacks are tricky. They’re meant to protect the customer but can also easily hurt the business. And that “easily” is the reason why online businesses turn to chargeback prevention.
Wondering why such strict measures are necessary?
Well, the stakes are high. And not only because chargebacks can hurt your business financially, but also because they can go after its reputation. They can cause your customers to lose trust.
But to get the full picture, let’s find out what chargebacks are, how they can hurt your business, and the types of tools you can implement to make sure your business is on its way to success.
A bit about chargebacks and why they happen
If you’re dealing with a lot of chargebacks, you might not get around to handling them all and just decide that it would be best if you let some go. But coming to terms with this can lead to bigger problems down the road, even if it doesn’t seem like it at the time. Chargebacks aren’t that serious on their own but when they pile up, they can seriously hurt your online business.
Money comes and goes but you won’t just lose money. A higher than 1% chargeback ratio might lead payment processors to blacklist you; your account might be suspended or you might have to pay additional fees. The downfall? Losing your customers’ trust due to poor business reputation.
Chargebacks happen due to a complaint from the customer. They might contact their bank to reverse the transaction, and if the bank sides with the customer, they’ll refund the money.
This usually happens when:
- A customer isn’t satisfied with the item they have received or they haven’t received the item at all. It might also happen that the business charges the customer multiple times by mistake. This is the business’s fault and a natural response from the customer.
- Unfortunately, some customers might take advantage of chargebacks. For example, they might regret making the purchase. They might find another item that they like better and decide to get their money back. Some want to keep the product without paying for it. This is what we call a “friendly fraud”, as the customer’s intention isn’t exactly malicious but ends up as such. Nearly half of the respondents in a survey confirmed that friendly fraud was responsible for 50% or more of their chargebacks.
- The customer claims that they never made the purchase. This could either be true, meaning someone has stolen their credit card and made a purchase. Or it could be a case of friendly fraud where the customer wants to keep both the money and the product.
So, no matter the nature of the chargeback, your business will suffer financially. And it surely is more painful when you know that you did everything right but a chargeback still happens. If you wish to prevent chargebacks from hurting your online business, consider the below-listed tools.
Essential tools for chargeback prevention
Chargebacks happen to all businesses. Especially in the e-commerce world. But even though they might not be a direct fraud, your business still ends up losing sales. You might also have to pay additional fees to handle the chargeback process. The money lost can pile up quickly.
But the worst thing you can experience is damage to your business reputation. In the e-commerce world, a high chargeback ratio boils your business down to being dishonest, which, on the other hand, is the recipe for losing your customers’ trust. It’s a harsh truth but one that all e-commerce platforms need to hear to understand how important it is to prevent chargebacks.
And here are the tools to help you do it:
Chargeback management tools
Even if you’re currently not as affected by chargebacks, you’ll have to deal with them at one point or another. And the best way to do this is by leaning on chargeback management tools.
These tools are designed to handle chargebacks efficiently. That said, the end goal of chargeback management tools is to protect your business from financial loss and keep your reputation intact by helping you track, respond to, and, finally, prevent chargebacks.
Here’s what the chargeback management process includes:
- Track and alert: These tools watch over chargebacks closely. They’ll notify you as soon as a chargeback is initiated. For example, if a customer disputes a transaction because they claim that they haven’t received a product, you can get to work immediately by starting to collect evidence, such as tracking the shipping status, and fight this claim. Not only that, but these tools can also warn you if a transaction is likely to be disputed.
- Gathering evidence: If you have any chance of fighting the claim, it lies in collecting evidence. A chargeback management tool can help you collect and organize transaction details, receipts, and tracking numbers so that you can make a strong case.
- Presenting evidence: Once you have gathered all of your evidence, you need to present it to the bank. Chargeback management tools can automate this whole process of representing by submitting all the documents to the bank or payment processor.
- Identify patterns: Some chargeback management tools analyze data in order to determine if there is an issue that ties all chargebacks. For example, if most of them have started due to delayed shipment or due to a specific product with quality issues.
As we can see, the process of fighting a chargeback can be challenging. You might not respond on time. You have to spend hours collecting documentation, which you later have to submit.
This is why chargeback management software is necessary when you’re part of the e-commerce world. It’ll help you save time, save money, save your business reputation, and save your customers’ trust. All in all, it will make sure that chargebacks don’t hinder your growth.
Fraud detection software
Fraud detection software can also come in handy for preventing chargebacks. And the best thing about this is that most fraud detection tools integrate with chargeback management tools, so you can get the best of both worlds without having to look for two separate software.
So, what’s the difference between the two?
Simply put, fraud detection software cares about the before while a chargeback management tool cares about the after. Since the purpose of these tools comes down to detecting and preventing fraud, they can flag suspicious transactions in real time, alerting you so that you can decline them on time. This will help you stop the problem before it happens.
The software can flag a transaction as suspicious if:
- The customer suddenly attempts to make a purchase from a location that doesn’t match their usual patterns. Of course, this doesn’t have to mean anything. Still, it’s definitely better to be in the clear instead of just inviting trouble to knock on your door.
- The customer tries to make a transaction with different cards or payment methods, which is especially suspicious if it happens in a short period.
- The customer makes a purchase a lot larger than usual. While this can surely happen, customers often tend to stick to their regular spending habits.
All these can be grounds for a chargeback. If a suspicious transaction manages to get through without being flagged, chances are the right owner of the credit card will dispute the transaction.
Chargeback management tools, on the other hand, enter after the customer has disputed the transaction. They try to help you fight the chargeback by gathering evidence such as receipts and tracking numbers. Their goal is to prove that the transaction was legit and the customer’s claims are wrong so that your business doesn’t suffer financially, as well as reputationally.
Reduce your losses with chargeback prevention
Even if they seem small, chargebacks are equally as serious as other types of fraud, such as identity theft or account takeovers. If you look at them separately, chargebacks aren’t that big of a threat but, as soon as they pile up, you can expect to deal with serious financial issues.
But the same as with other types of fraud, you can fight chargebacks. You can lean on fraud detection software to stop a fraudulent transaction on time, as well as on a chargeback management tool to fight the chargeback by collecting evidence and submitting it after a transaction has been disputed. This can save you from both financial and reputational issues.
