Every business that accepts payment by credit card knows the expense in both time and money that chargebacks can cause. Chargebacks can be initiated for a variety of reasons, of course. Some are questionable, or even fraudulent. On the other hand, many are legitimate, or at least understandable. Typically, the cause is some type of dissatisfaction on the part of the customer regarding the product, the services, or the transaction itself.
Naturally, even legitimate chargebacks are preventable. Customers don’t have to be dissatisfied, and they don’t have to demand a refund when everything isn’t perfect. The reality, though, is that customers will be dissatisfied at times, and will demand a refund on many of those occasions. Chargebacks are, strictly speaking, preventable, but they are, realistically speaking, inevitable.
What is inevitable, however, is the occurrence of chargebacks, not the number, frequency, or scale. Those aspects of the inevitable can be mitigated to one degree or another. One thing to keep in mind, however, is that, just as chargebacks themselves can be expensive for your business, mitigation measures can be a drain on resources as well if they are not managed wisely.
So, what will mitigate the damage of chargebacks while at the same time mitigating the damage of chargebacks? Since a leading cause of chargebacks is customer dissatisfaction, reducing that dissatisfaction can be expected to reduce the risk of chargebacks. The simplest and most cost-effective approach is to start with the transaction itself.
Why the transaction and not the products and services? One reason is that you’re probably already working on those elements of your business and are already investing enough time and money that it may not be practical to invest more. Most business owners are keenly aware that they won’t be in business long if their products and services fail to satisfy customers.
Another reason is that improving and developing products and services is a lengthy process. What we want to do is to achieve the most positive impact in the most efficient way possible. Chargebacks are costing you money, so reducing them this week is preferable to reducing them next week.
Many online shoppers put items in their shopping cart only to abandon the cart without checking out. This phenomenon has been the subject of extensive research that indicates that there are many reasons for it to happen. Often it is as simple as using the shopping cart as a kind of “bookmark” to save the item for further consideration. The shopping cart ends up being the “maybe cart.” If the shopper finds the product at a better price somewhere else, he or she might not return to the earlier website to empty the cart.
In other cases, however, the problem is the checkout process itself. Your customers want to pay for their purchases as quickly and easily as possible. At a physical cash register, the customer hands cash to the cashier or uses a keypad for credit cards and is then immediately able to walk out of the store with the purchased items. When purchasing something online, shoppers want the process to be as close to that simple exchange as possible. They are willing to tolerate a few unavoidable extra steps, such as providing an address for delivery, but anything more is an annoyance.
Even if the customer ends up making the purchase, the quality of the customer’s experience making the payment could be the factor that tips the scales if the customer is considering a chargeback. If the customer is a little dissatisfied with the product or is simply feeling some “buyer’s remorse,” the memory of a negative experience trying to pay for the product could artificially inflate that product-related dissatisfaction. So, the easier, simpler, and quicker the payment process the better.
One of the biggest annoyances when trying to make a payment is surprises, with hidden fees and unexpected shipping costs being the main culprits. Such surprises are often the reason that the shopper decides against making the purchase, but also leave the customer with a negative impression even if the purchase is made. This means that, in addition to making the process simple and straightforward, you need to be clear about any additional costs or other requirements for making the purchase from the beginning.
Customers prefer to have no additional fees, of course, but if reducing or eliminating the fees is not possible, being upfront about them from the start can help minimize the negative impact. For example, if possible, display shipping costs, taxes, and fees beforehand instead of waiting until the customer is checking out.
Another annoyance is being required to create an account on the website. In many cases, the customer will want to create an account. If the customer anticipates making additional purchases from your business in the future, for example, having an account can be very convenient. However, there are times when a shopper simply wants to purchase this product this one time, and doesn’t want to take the time to provide additional personal information, think of a user name, then a different user name because the first one is already taken, decide whether to come up with a new password or use the same one he’s been using since 1997, check e-mail for the confirmation code, then go back to the website to enter the confirmation code, all before making the purchase, which is the only reason the customer is on your website in the first place. This can be avoided by providing the option to check out as a guest.
Although it may seem counterintuitive, making it easier for customers to decide not to make a purchase can often be the best option. Let’s say that a customer considered purchasing a product, but decided against it. In that case, you lose the revenue from the sale, or more accurately, you don’t get the increase that you would have gotten from the sale. No harm, no foul.
Now, let’s say that a customer purchases that product then later initiates a chargeback. You still lose the revenue from the sale, but you also incur costs related to processing the chargeback and using resources for activities that don’t move your business forward. Your business ends up with less than if the customer had never even considered making the purchase in the first place.
So, particularly in high-risk industries that have a higher rate of chargebacks, it’s important to have a step in which you show the customer the details of the purchase in a clear and easy-to-understand manner and request confirmation. Customers who end up initiating a chargeback due to something other than problems with product quality (e.g., buyer’s remorse) often have some misgivings about the purchase, to begin with. They may get past those misgivings with an impulse buy. However, if they are given one more chance to see the details and reevaluate the purchase, they may decide that they really don’t want the item as much as they thought they did.
Even if the customer decides not to finalize the purchase at that time, you haven’t necessarily lost the sale. The customer may think about it and ultimately decide to buy the item from you, and the determining factor in the decision to buy it from your business may be the clear, upfront, and the pressure-free manner in which you showed the customer exactly what she was getting herself into.
Good high-risk payment processors have the knowledge and experience to minimize the impact that chargebacks have on your business. Be sure to ask questions and discuss any concerns, whether you’re looking for a high-risk payment processor or you already have one. While it is true that they specialize in these issues, there are limitations to what they can do, even in the best of circumstances. Measures against chargebacks are most effective when you and your payment processor work as partners. Don’t forget to use that valuable resource.