A chargeback occurs when a customer is unhappy with a charge on their credit card for a variety of reasons, from a subscription they didn’t realize they signed up for to a product that never arrived. Whether legitimate or not, chargebacks can create problems for your relationships with vendors and customers alike — they can even result in losing your partnerships with payment processors. It is important to know how to fight large chargebacks as a business owner.

To protect your standing as a business and avoid the adverse effects of chargebacks, you need to keep large chargebacks at bay and fight them when they appear.

What's a Large Chargeback?

It starts with the cardholder submitting a dispute to their credit card provider or payment processor when they’re unhappy with the purchase or didn’t make it in the first place. Different card issuers and processors have varying methods — but if the dispute is approved, the transaction is reversed and the money is sent back to the customer. This process can be complicated and often comes with many additional penalties or fines for the merchant.

When you account for all of the costs associated to fight large chargebacks, you could end up with the following:

• The cost of the item: If an item’s been sent or a service is received, you lose out on the value of it. Since the customer gets a refund and you can’t resell the product, you lose twice the value of the item or service.
• Fees from the card provider: Most card issuers will charge fees associated with chargebacks and the work they put into solving the disputes. These are often flat fees.
• The labor involved in processing disputes: These disputes require rebuttals and a back-and-forth with the card issuer, and potentially, the customer. That requires time and effort from one of your employees. Depending on the size of your organization, dispute resolution could be a full-time job.
• Penalties: Some issuers charge additional fees to merchants with frequent chargebacks, adding a percentage rate to your transactions or simply charging more for their services.
• Lost business from restricted services: If you have too many chargebacks, you may have a hard time finding payment processors willing to work with you. Without convenient, secure payment options, customers may not trust your checkout process and choose to go elsewhere.

On average, estimates say that merchants spend about $3.60 for every $1 of fraud, so preventing it is key to avoiding excessive costs. In addition to these costs, a high number of chargebacks can cause problems for your standing with payment processors and card issuers. Many of them will simply deny these high-risk merchants, leaving them without a good payment processing solution.

How Do You Fight Friendly Fraud Large Chargebacks?

This is a specific type of chargeback in which the customer makes a legitimate purchase and disputes the charge after they’ve received the goods or services. It’s called friendly fraud because the purchase was made legitimately, but the customer is still disputing it for another reason, such as a delivery problem or being unhappy with the service — all to receive a free product.

Knowing how to fight friendly fraud chargebacks requires some planning and recordkeeping. Many banks tend to side with customers to retain their support, especially in the case of smaller organizations that have one-on-one relationships with customers. Some banks will also have varying criteria for how they determine dispute outcomes.

It might help to track the outcomes of your chargebacks to better understand how specific processors, banks and card issuers typically respond. Additionally, you’ll want to try using several strategies to see what works best for your business. To fight against a friendly fraud chargeback, you’ll want to gather up the following resources when communicating with the credit card issuer:

1. Rebuttal Letter

The rebuttal letter is a significant component of the dispute. This is the piece of communication that tells the card issuer your side of the story. Be sure to keep it short and sweet and explain the situation briefly — they don’t have time to read more than is necessary. The issuer wants to see that you’ve met your obligations, the customer knew of the terms of their purchase and whether money was refunded elsewhere.

Include an itemization of the supporting documents and the case number on this document.

2. Records of AVS and CVV

Both address verification service (AVS) and card verification values (CVVs) are two tools that add a layer of security to online or phone purchases. AVS checks the customer’s billing address with the address on file with the card issuer. The CVV, which retailers can’t store after authorization, theoretically confirms that the purchaser has the physical card in their hands.

Assuming you’ve verified the AVS and CVV, provide that in your discussions with the card issuer. This documentation tells them you’ve taken the appropriate steps to prove the authenticity of the purchaser.

3. Receipts and Invoices

Include all receipts and invoices, which are often used to corroborate your verification methods and other points of confirmation, such as the address the customer told you to send a product to and the amount they agreed to pay. Other pieces of information to look for include billing and shipping addresses, the time of sale and the item or service that was sold.

4. Tracking Number or Proof of Delivery

If you’ve sent a physical item, a tracking number provides records of the product’s delivery. Some carriers even take photos when dropping off an item. While services or digital items can be harder to prove, if you can provide something like a proof of download, you can help your case.

5. Terms and Conditions and Customer Agreement

Send a snippet of your terms and conditions that’s relevant to the dispute, highlighting it to only show what’s important. Include a screenshot of the checkout page that shows the customer agreed to said terms and conditions when checking out.

What Are the Explanations for Common Chargebacks?

There are many reasons a customer might initiate a chargeback. While some customers will be deliberately lying, a few will have misunderstood the terms and others will be telling the truth. Knowing the explanations for lots of chargebacks can help you understand where your buying process may have room for improvement.

For instance, if you find that you’re getting a lot of chargebacks for items not received, you may want to revisit your choice of shipping carrier. In many cases, you can also reduce chargebacks by emphasizing your customer service team. An unhappy customer that remembers seeing a customer service phone number on their confirmation email may be more likely to call you before going straight to their card issuer.

Here are some common reasons for chargebacks:

• Fraud or unauthorized use: Usually, credit card fraud is the most common type of identity theft, only being surpassed by government documents/benefits fraud in 2020. Although it’s very common, it’s also an easy chargeback for customers to claim if they want to keep an item they’ve purchased while getting the refund. These often occur on phone or online purchases, but in-person ones aren’t uncommon.
• Unrecognized transactions: If a cardholder sees an odd business name on their statement and doesn’t match it up to their purchase, they may just dispute the charge, believing it to be illegitimate.
• Duplicate transaction: Being charged twice could come from the merchant actually processing a purchase twice or an error with the payment processor.
• Product or service doesn’t meet description: If the customer receives a product or service that doesn’t reflect what they ordered, they’re likely to submit a chargeback. These disputes may be made if the customer and merchant disagree on descriptions. This is where clear, objective descriptions come in handy.
• Transaction amount does not match the agreed-upon price: Being charged a higher amount than reflected on the receipt may result in a chargeback.
• Services not rendered or product not received: If the product never arrived at their door or their services weren’t rendered, a customer may dispute.
• Manual error: Mistakes do happen, such as a waiter accidentally typing in an additional digit while entering in the price of an order.
• Defective products received: A product that doesn’t work as described could also warrant a chargeback.
• Recurring transaction cancellation: Sometimes, subscribers don’t realize they’ve started a subscription and will dispute the renewal when it comes through, especially if the cancellation process isn’t easy.

How Can You Maintain a Low Chargeback Ratio?

A chargeback ratio is the percentage of chargebacks to transactions that occur each month, regardless of dollar amounts or the results of the chargeback. Most payment processors require that ratio to be below 1 or 2%. If it rises above that, the processor will likely charge fines, restrict your account or stop doing business with you. To avoid high chargeback ratios, it’s essential to learn from your chargebacks and take steps to minimize them.

Below are some strategies on how to avoid having to fight large chargebacks and keep your chargeback ratio low:

• Be transparent: Be upfront with your customers about what they’re buying. Don’t try to deceive them or make your product sound like something it’s not, and make sure your descriptions are accurate and clear.
• Provide good customer service: If you and your customers can’t agree on a solution, they’re more likely to turn to their card issuer or payment processor to solve the problem. Consider improving the training of your customer service representatives or revisiting your processes in general.
• Use a DBA: Establish which name you’re doing business as (DBA) and use it for your website and charges. This step helps prevent your customers from seeing an unfamiliar name on their statements and wondering where the charge originated.
• Send confirmation and customer satisfaction emails: Ideally, intervening before a dissatisfied customer can submit a dispute allows you to solve the problem first. A reminder via an email can help. Additionally, confirmation emails provide proof of the purchase to make sure everyone’s on the same page.
• Maintain high transaction counts: Keeping your transaction counts high can help you reduce the ratio. New products, marketing strategies or locations can help, as opposed to a technique like increasing transaction size.
• Be upfront with your refund policy: Ensure customers can access your refund policy easily, such as through a link at the bottom of the page. Don’t use vague language.
• Collect the necessary card details: If your processing platform doesn’t already do so, make sure you’re collecting information like CVVs and expiration dates and verifying addresses and phone numbers from the card issuer.
• Make your information easy to find: A business’s contact phone number, email or chat system should be easy for customers to access and use. If your customers can’t figure out how to get hold of someone at your company, they may go to their card issuer, whose phone number is easily accessible — right on the back of their card.
• Make it easy to unsubscribe: Similarly, if subscriptions are near impossible to cancel, you’ll likely see a sizable number of chargebacks from customers who couldn’t get it done.
  

Chargeback Protection From Zen Payments

Another way to keep your business safe from the effects of these disputes is to use chargeback protection. Here at Zen Payments, we specialize in the needs of high-risk vendors, including those with high chargeback ratios. Other factors that can label a business as high-risk include personal credit, subscription offers, free trials that require credit cards and restricted industries like adult products and firearm sales.

These organizations are often denied payment processing services. If not, they may end up paying a sizable amount from chargebacks due to the nature of the business. With chargeback protection, we can help you fight chargebacks of all types. Therefore, you can continue to conduct business without worrying about unexpected chargebacks that cost you more and bar you from working with processors.

Our network of high-risk banks and payment processors allows us to set you up with a long-term solution designed for your line of business.

Learn More About Zen Payments Solutions

At Zen Payments, we make high-risk merchant accounts simple. Our average approval rating is 98%, and we support all types of high-risk businesses, whether that label is due to credit history, your industry or something else entirely. We make reliable payment processing solutions affordable for everyone, with a wide range of solutions for e-commerce, virtual terminals and physical credit card terminals.

To find the best payment gateway for your business and offer your services to more customers, the pros at Zen Payments can help. We have over 15 years of experience with payment processing for high-risk merchants and are ready to help you find the right solution. Learn more by reaching out to us online or calling us at (801) 405-9888.