How to Defend Against the Onslaught of Credit Card Chargebacks

Published on August 10, 2018

Since the inception of credit cards, chargebacks have become an increasingly large problem for merchants the world over. The total loss of funds is quite difficult to quantify. However, dispute management firm Chargeback estimated $7 billion in chargebacks for ecommerce alone in 2016(!).

Consumers enjoy the protective nature of chargebacks, but the ease with which they can file them sometimes contributes to “friendly fraud”. Instead of contacting the merchant, shoppers will often file chargebacks with their credit card provider for various reasons.

Maybe the customer received an incorrect product, the product didn’t meet their expectations, or the customer was double-billed. Chargeback software provider Chargeback911 estimates that we can expect $25 billion in friendly fraud each year by 2020, if current trends continue. That’s an awfully large sum to lose for what seems like an avoidable problem.

So, how can businesses keep money in the bank and reduce chargebacks?

Provide clear and concise terms for customers ahead of time.

A good percentage of chargebacks could be avoided by educating shoppers, and requiring that they acknowledge and agree to the terms of the merchant/buyer relationship up front. One of the ways to do this is provide a customer contract with easy-to-understand terms.

The customer must provide a written signature or electronic verification to move forward with a purchase. Then be sure to reiterate the terms on any additional documentation – order forms, return policies, and even email communication with customers.

Related: Minimize invoice disputes with these 5 tips

Include as much detail as possible to identify the merchant to the customer.

Another strategy to reducing chargebacks is to add identifying information about your business to the contract, order form, and any other customer documentation. If your business uses a different name than the what’s used in the ecommerce store, provide it in writing. The mailing address, phone number, and even the business’s IP address can be helpful as well.

Keep meticulous, organized records of all transactions.

Providing clear terms of service and merchant information are just one step in the process. In order to defend against chargebacks, it’s absolutely necessary to be able to retrieve transaction data quickly to share with credit card processors. That means creating a system for keeping track of transaction data for easy retrieval.

Let’s say a customer files a chargeback with their credit card processor, which then sends an inquiry to the merchant. Staff can spend a great deal of time digging through transaction files, and maybe never find the appropriate documents. The merchant might have them, but if they never make it to the credit card processor, that’s lost revenue. And credit card processors charge merchants fees for those chargebacks, so the merchant is out for both the lost revenue and the processor’s fee.

With an organized system, merchants can provide credit card processors with evidence to defend against the chargeback. Along with a chargeback rebuttal letter, the signed contract, clear terms of service, merchant information, customer data, and even any email or phone communication can help sway the processor to decide in favor of the merchant.

Related: A beginner’s guide to credit card chargebacks

When a chargeback inquiry shows up, respond to it immediately.

With all this ammunition at their fingertips, there’s no excuse for waiting when merchants receive chargebacks. And the longer they wait, the more likely it is that the credit card processor will accept the chargeback due to lack of response. Sending any details as soon as the inquiry comes in is critical to reducing a business’s chargeback rate.

Don’t let chargebacks drain your bank account.

Without proper attention, chargebacks can quickly become a financial strain on a business. Merchants should take proactive steps to set expectations with customers, organize transaction data, and respond ASAP to chargeback requests. These steps won’t completely stop the process, but they will provide merchants with the best possible chance of success at disputing chargebacks.

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