Why Your Company Has So Many Chargebacks

Introduction to Chargebacks

Chargebacks can cause significant financial losses and negatively affect a company's reputation with credit card processors. For businesses operating in eCommerce, it's crucial to understand chargebacks and take appropriate steps to avoid them.

Why Are Chargebacks Bad?

Chargebacks are detrimental to businesses for several reasons:

They're a complete reversal of profit, beyond a simple refund.

Accumulating chargebacks can lead to cancellation of your merchant account.

Most banks have chargeback thresholds (usually 1% - 3%) that merchants can't exceed.

They consume bank resources, as banks act as mediators in disputes.

They can damage your brand and customer relationships.

What is a Credit Card Chargeback?

A chargeback, also known as a disputed transaction, occurs when a consumer contests a charge on their credit card. When a claim is filed, the merchant must reverse the transaction to refund the money. Chargebacks are designed to protect shoppers from unauthorized transactions.

Common Causes of Chargebacks

Understanding the reasons for chargebacks can help businesses fight and prevent them:

01. Friendly Fraud

This occurs when dishonest customers file fraudulent claims, stating they didn't receive a product or service they actually did receive and enjoy.

02. Technical Mistakes

• Human Error: Manual processing of credit card transactions can lead to mistakes.
• Duplicate Charges: System errors or multiple customer clicks on the "Pay" button can result in duplicate charges.

03. Late Shipment or Delayed Service Delivery

Failure to ship items or deliver services within the stated timeframe can prompt customers to dispute transactions.

04. Unauthorized Email or Phone Transactions

Customers may deny making purchases via mail or phone. It's crucial to collect detailed information for these transactions.

05. Invalid Accounts or Credit Card Numbers

If your system isn't configured to reject invalid or expired cards, you could be responsible for numerous chargebacks.

Preventing Chargebacks

To reduce chargebacks:

Implement robust fraud detection systems.

Provide clear product descriptions and delivery timeframes.

Offer excellent customer service and easy refund processes.

Keep detailed transaction records.

Use delivery tracking for physical products.

Regularly update your payment processing system.

Conclusion

While chargebacks are a common issue for businesses, especially in eCommerce, understanding their causes and implementing preventive measures can significantly reduce their occurrence. By addressing these issues promptly, businesses can maintain financial stability and build a secure, reputable company.