How to prevent chargebacks

Chargebacks are an expensive problem for businesses. And it's a problem that isn't going away. In retail, 27% of merchants claim chargeback rates are rising.

Given the high costs associated with chargebacks, you must build strategies to minimize the negative impact chargebacks have on our business. In this article, we explain more about chargeback protection. Specifically, we cover:

• What is a chargeback?
• Can you prevent chargebacks?

Ten ways for chargeback prevention:

What is a chargeback?

A chargeback means funds are returned directly to a customer’s account after they dispute a payment they have made via a card.

Chargebacks  can happen when:

• a customer thinks a card payment was fraudulent
• services were never provided
• merchandise was not received

Learn more: What is a chargeback?

Can you stop chargebacks?

It's impossible to eradicate chargebacks. But with an effective chargeback management strategy, you can reduce the likelihood of chargebacks and disputes occurring and minimize their impact on your business.

Ten ways to prevent chargebacks

Here are ten steps you can take to keep disputes and chargebacks to a minimum :

1. Make your return, refund and cancellation policies clear

Clearly communicate your return, refund and cancelation policies to customers at the time of the sale. This may help stop chargebacks for canceled transactions’, when the customer claims to have canceled their order yet is still charged. Or for ‘transaction not recognized’ or ‘incorrect transaction amount’.

Include your terms and conditions near the ‘click to pay’ button, or as a separate tick box in the checkout process. Also include signage at point of sale, wording on receipts or verbal prompts from sales staff are options for store-based businesses.

Learn more: chargebacks vs. refunds

2. Confirm customer orders

It’s good business practice to confirm customer orders. It may also help prevent unnecessary disputed payments too. If you accept orders for goods or services to be delivered later, manage the customer’s expectations. Update them on delivery times and allow them to track their order.

Let the customer know if goods are out of stock, no longer available, or the delivery will be delayed. Offer the option of purchasing an alternative or canceling the order. This may help prevent chargebacks for 'services not provided' or 'merchandise not received'—two of the most common reasons for disputed payments.

3. Provide good customer service

Ensure that the contact details of your customer service team are easy to find on your website, printed receipts, delivery dockets and so on. Again, this is good business practice. But it may also prevent a routine inquiry from escalating into a chargeback.

Train your customer services staff to resolve complaints promptly and thoroughly in the first instance to avoid potential chargebacks later. Keep your procedures for customer billing queries and claims under constant review.

4. Use a clear billing descriptor on customer statements

Check that the billing descriptor on statements can be easily understood by the customer. Best practice is they should be able to identify the purchase immediately so they don’t mistakenly initiate a dispute.

If the registered name of your business is different from your trading name, choose the one that’s likely to be most familiar to customers. Similarly, populating the ‘city’ field with the town or post/zip code of the store, or your website address for online orders, can help jog a customer's memory.

5. Delay billing

To prevent ‘non-receipt of merchandise’ disputes, don’t charge cards until goods have been shipped. If customers see transactions on their statements before goods arrive, it may cause confusion and lead to a preventable dispute.

Just as it’s best not to submit transactions too early, don’t submit them too late, either. This helps minimize ‘late presentment’ or ‘credit not processed’ disputes.

6. Obtain proof of customer participation

Providing compelling evidence that the customer participated in the transaction and/or received the goods helps defend certain chargebacks. Configure your internal processes to capture the customer’s account order history, clearly showing all transactions.

Collect and retain signed delivery receipts from the customer, courier tracking documentation, or the customer’s IP address, description, date and time of download, if you sell digital services.

7. Leverage Strong Customer Authentication rules

Identify and verify customer identities using 3D Secure 2.0 (3DS2). This updated protocol offers a layer of protection against the fraudulent use of accounts—one of the most common reasons for chargebacks in the card-not-present space.

Payment providers now guarantee payment for certain successful online transactions that have been authenticated with 3D Secure 2.0 (3DS2). More importantly, 3DS2 is an opportunity to share more data and help issuers with risk-based authentication to provide better customer experiences at the checkout.

8. Cancel recurring transactions promptly

As a best practice, cancel recurring transactions promptly. Confirm the cancellation to the customer in writing, stating the effective date of the cancellation.

Remind them of any cancellation restrictions in cases where the customer has paid up-front for a subscription or membership of a pre-agreed duration. Offer to take another form of payment for the remainder of their subscription or membership, as appropriate.

9. Update expired cards

There’s no need to incur chargebacks, lose sales or miss payments because your customer’s card has expired. Mastercard and Visa refresh details if cards expire, are lost, stolen or upgraded.

Our Account Updater service is available to merchants in the EU or US who tokenize their cards with Checkout.com. It automatically updates expired cards helping you maximize revenue, reduce churn and the manual work of prompting customers for new card details.

10. Draw on the support of your payment provider

Innovative businesses and their PSPs use payment data predictively to detect and prevent fraud. But to see results, you need access to the right type of data and competencies.

You need a fraud detection tool with a Machine Learning feature trained on billions of hard and soft data points from a global network of merchants. It can then learn from patterns of real fraud across multiple sectors and countries. These insights can then be applied to identify and stop suspicious activity at the point of transaction. You can then be less exposed to existing and emerging fraud patterns, with wider insights and historical data about existing and emerging fraud patterns.

Learn more: Friendly fraud vs. chargeback fraud

Reduce chargebacks with Checkout.com

Developing a chargeback strategy, pre-empting disputes and knowing which chargebacks to challenge and the costs of doing so are all ways to protect cash flow, profitability and competitive advantage.

Learn how you can recover lost revenue with Checkout.com's fraud detection product.