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.
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:
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.
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:
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.
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.
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.
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.
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.
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:
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:
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.
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.