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The Costly Consequences of Chargebacks

Chargebacks – essentially, disputed transactions – occur when clients contest their transactions to an establishment. Chargebacks are meant to protect customers from scams but they can harm sellers, too. In addition to lost sales revenue, payment processors and card networks often impose additional charges and fines.

Small businesses that operate on low profit margins can be severely affected by chargebacks. According to recent research, a chargeback can cost between $20 and $100 on average, depending on several factors, such as industry and transaction size. These expenses can quickly pile up, reducing a company’s earnings and inhibiting reinvestment in future growth.

Understanding the Root Causes

To effectively deal with chargebacks, it is necessary to know what causes them:

Friendly Fraud 

A significant number of chargebacks come from “friendly fraud.” This occurs when customers knowingly or unknowingly dispute valid transactions because they misunderstand the process. For example, a client might fail to recognize a charge on their statement or forget about making a purchase.

Merchant Errors

Sometimes merchants make mistakes that lead to chargebacks. Examples include wrong billing descriptors, shipping delays, and lack of customer support. These errors can leave customers dissatisfied, thereby increasing the rate at which the merchant’s customers file for chargebacks.

Criminal Fraud

Although rare, some chargebacks occur due to criminal activities like credit card theft or identity theft. Apart from these fake transactions leading to loss of revenue, they can also negatively impact a firm’s image and credibility.

Strategies for Reducing Chargeback Rates

Fortunately, there are several techniques that businesses can apply to reduce the effects of chargebacks and protect their streams of income: 

Improved Customer Communication

Conversing with customers in a readily understandable manner will help prevent accidental miscommunication, thereby reducing friendly fraud. Ensuring billing descriptors are easily recognizable by shoppers, offering them detailed order confirmations, and indicating refund policies clearly are also beneficial practices. Furthermore, proactive customer support measures like sending emails or SMS notifications for changes in order status can provide customers peace of mind.

Enhanced Fraud Prevention

Implementing stringent anti-fraud measures is paramount to effectively fight chargeback-related criminal activity. Some examples include: using AVS (address verification systems), implementing 3-D Secure authentication protocols, and employing machine learning algorithms that can identify irregular transaction patterns.

Dispute Management

For those times when chargebacks cannot be prevented, organizations’ dispute-handling procedures must be well defined to ensure maximum success rates.

This involves undertakings such as: proper documentation of transaction records; complete and efficient evidence collection for defensive use against disputes levied by payment processors; and issuing prompt and proper responses once notification has been received from these service providers.

Dispute management, when done correctly, significantly increases the chances of winning back lost revenues.

Best Practices for Chargeback Management

Implementing best practices for chargeback management can help streamline processes and ensure a consistency in approach. These include:

  • Writing clear policies and procedures on how to handle chargebacks
  • Educating employees about chargeback prevention and dispute resolution
  • Actively monitoring chargebacks by analyzing them frequently to identify areas that need improvement
  • Using automated systems for managing issues related to payments not received due to a dispute filing by a financial institution

Final Thoughts

Chargebacks are an issue for all businesses, regardless of size. However, their financial disruption can be effectively reduced by using proper methods and tools.

VULT Security has developed new ways in which streamlined procedures are used in preventing revenue loss due to chargebacks. Their state-of-the-art, anti-chargeback system uses complex analytics and machine learning algorithms. These systems detect transactional patterns, qualify buyers, and help to minimize disputes and chargebacks.

Are too many chargebacks affecting your revenues? Partner with VULT Security today. VULT Security offers a variety of innovative solutions designed for businesses looking to recover lost revenue and streamline chargeback processes.

Contact VULT Security now to schedule a meeting with a VULT Security expert.