Chargebacks are an expensive and time-consuming part of doing business. And, they're more common now than ever. Our research found that online retailers in Europe saw chargebacks increase by 25% throughout the pandemic.
Although fighting chargebacks typically falls within the realm of the payments or fraud or finance team, the truth is a chargeback is the symptom of something that has gone wrong upstream in a business. And that means teams across the business — from payments, to product, to support — have a role to play in preventing them.
We've engaged with businesses worldwide to help them better understand why chargebacks are impacting their business. Here are ten of the most common issues that I see. And advice on what businesses can do to solve them to keep chargebacks and disputes to a minimum.
1. Leverage Strong Customer Authentication rules
To win a dispute, you'll need to prove the service was provided according to the agreed terms and conditions. And that the service or product was delivered to the individual who made the payment. It's possible to prove the latter using Strong Customer Authentication.
Identifying and verifying customer identities using 3D Secure 2.0 (3DS2) 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. Issuers now guarantee payment for certain successful online transactions that have been authenticated with 3D Secure 2.0 (3DS2).
2. Make your policies clear
It's important for a business to clearly communicate return, refund and cancellation policies to customers during the sale. Doing so may help prevent chargebacks for ‘canceled transactions’ — when the customer claims to have canceled their order yet is still charged. It may also prevent issues around the ‘transaction not being recognized’ or ‘the incorrect transaction amount’. This is particularly important with recurring payments.
We see businesses doing this by including their terms and conditions where the customer has to click to submit the payment. Some also include a separate tick box in the checkout process as a low friction way to add an extra layer of protection.
The best way to deal with chargebacks is by making sure they never happen. So be clear about your T&Cs and communicate as much as possible with your customers before and after you charge them.
3. Confirm customer orders
It’s good business practice to confirm customer orders. And, if possible, manage the customer’s expectations by updating them on delivery times and allowing them to track their order. Capturing as much data as possible from before the payment is taken until the service or product is received ensures you'll have the information required to fight a chargeback.
But following this best practice won't just help prevent unnecessary disputed payments. It'll also help win their repeat business. Nearly 70% of consumers say the ability to track orders was one of their top three considerations when buying a product online.
If issues with an order do arise. Say the goods are out of stock, no longer available, or the delivery will be delayed. Contacting the customer right away to offer the option of purchasing an alternative item or providing the customer with a refund is critical.
Another option is for businesses to delay the capture of the payment. Delaying capture may help prevent chargebacks for ‘services not provided’ or ‘merchandise not received’, which are two of the most common reasons for disputed payments.
4. Provide a good customer service
The best approach is always to have good communication with your customer. Customers who are unable to get a response from a merchant’s customer support will turn to chargebacks as a way to complain. It's simple, but ensure the contact details of your customer service team are easy to find on your website, printed receipts, delivery dockets and so forth.
Also, ensure the customer services team is trained to resolve complaints promptly and fully in the first instance to avoid potential chargebacks later. It's also worth keeping your procedures for customer billing queries and claims under constant review.
5. Use a clear descriptor on customer statements
Check that the billing descriptor on the customer’s statement can be easily understood. Customers should be able to immediately identify the purchase so that 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 store's town or post/zip code, or your website address for online orders, can jog a customer's memory.
6. Delay billing
Don't charge cards until you ship the goods to help prevent ‘non-receipt of merchandise’ disputes. If customers see transactions on their statements before goods arrive, this may lead to confusion and a preventable dispute.
Just as it’s best not to submit transactions too early, don’t submit them too late either. This helps avoid ‘late presentment’ or ‘credit not processed’ disputes.
7. 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.
If you sell digital services, collect and retain signed delivery receipts from the customer, courier tracking documentation, or the customer’s IP address, description, date and time of download.
8. Cancel recurring transactions quickly
As a best practice, you should promptly cancel recurring transactions when requested. Also, confirm in writing to the customer that their payment instructions have been canceled. And the effective date of the cancellation.
In cases where the customer has paid up-front for a subscription or membership of a pre-agreed duration, remind them of any applicable cancellation restrictions. Offer to take another form of payment for the remainder of their subscription or membership, as appropriate.
Remember, most chargebacks related to recurring payments can be prevented by having clear terms and conditions and an easy-to-access payment cancellation page. An even better practice is to remind the customer of an upcoming payment for the first recurrence or if a long period has passed since the last payment. A customer who was not sent a reminder or was unaware that they would be making a recurring payment is far more likely to raise a chargeback and win it.
9. Update expired cards
There’s no need to incur chargebacks, lose sales or miss payments because your customer’s card has expired. Both 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 merchants are using payments data predictively to detect and prevent fraud. But to see results, you need access to the right type of data and competencies.
If you don’t have the data, budget or resources to build your own data-driven payment capabilities, draw on the support of your payment provider. A full-stack acquirer that owns its technology end-to-end can set the transaction flags to know how the message gets to the issuer. And can pull off data on the payment at every point in its journey to inform predictive models.
And when disputes occur, your payment provider should be able to let you know which scheme they have received a dispute from and for what reason. It's even better if they can go one step further and let you know what type of evidence you should submit.