Chargebacks Part 3: How to Successfully Prepare for Chargebacks

Find Part 1 of this article at Chargebacks Part 1: A Quick Guide to Understanding Chargebacks and Why They Occur.
Find Part 2 of this article at Chargebacks Part 2: Understanding the Chargeback Dispute Process.

More customers feeling comfortable and secure shopping online means more revenue coming through your door. With each transaction, your business grows. But, something else happens with each transaction – the potential for a chargeback.

In case you haven’t followed along in our series, a chargeback is when a customer disputes a charge to their credit card or account and take their complaint to the issuing bank. The bank then turns to you for an explanation, and often reimbursement.

The unfortunate truth is that for every honest chargeback request, there are a number that are fraudulent in nature. Disputing these claims can be costly and time consuming, but you also don’t want to just sit back and let them happen. The best plan of action is a preventative one that not only prepares you for chargebacks when they happen, but also stops some of them from occurring in the first place. Let’s talk about what you can do to prepare for the inevitable.

First, a Word About “Friendly” Fraud

There really isn’t anything friendly about fraud, and to be honest, these two words just don’t look right sitting next to each other. Yet, friendly fraud is becoming a term that many businesses are all too familiar with.

Friendly fraud is a term used to describe an act by a consumer where they make a purchase using their own credit card or account, receive the merchandise or service, and then file a chargeback. This type of fraud is especially common for digital goods and services. In any other industry this would be called shoplifting, theft or stealing.

So, why is it called “friendly”? In almost every case of friendly fraud, the consumer puts on a pleasant face and presents themselves as well-intentioned victim of a mistake. They might claim that they weren’t home when the item was delivered, so it was never received, or they might say that they returned the item but never received a refund. There’s countless reasons that a fraudulent customer might give to regain the money spent while keeping the goods.

Sometimes a purchase is made with the intent to commit friendly fraud, other times it might be buyer’s remorse or that they intended to return something but forgot and now it’s way past the time allotted in the return policy. The claims behind friendly fraud are individual, but there’s some steps you can take to easily dispute fraudulent chargebacks when they pop up.

Steps to Protecting Yourself Against Chargebacks

• First, make sure that you’ve got your bases covered by verifying all the customer’s information, including their address. Any transaction with a discrepancy in the name or billing address should be declined.
• Make sure that your payment system requires the CVV or AVS code be provided and validate that number during payment processing.
• Only use a traceable shipping service and keep meticulous records of tracking numbers, delivery confirmations and signatures. If possible, use a service that requires a signature or provides a photograph upon delivery.
• Keep a record of all dialogue, including customer service interactions, for each customer.
• Make sure that your refund policy is easily accessible and clear to understand.
• Consider using a payment software system with stringent authorization processes.
• Collect as much data about your customers as possible. Not only will this help you be more prepared in the event of a chargeback, you’ll also learn more about what makes your customers happy in the process.
• Provide excellent customer service and make it easy for a customer to return items. The less friction you put on a situation that should be simple, the less likely you are to see that customer’s order come up in a chargeback.
• For digital goods and services, collect IP and machine signatures. A customer’s computer, mobile device, and Internet connection information can help to separate good orders from bad.
• If you’re in the B2B sector have your customer sign a contract for large transactions.
• Put a fraud screening service in place. Before approving a transaction, they will analyze data from many different sources to determine the viability of the order.

Recurring Billing

There are a few additional steps any subscription or recurring biller needs to take to avoid issues with chargebacks.

1. Be very clear that this is a recurring billing service when the customer is signing up.
2. Be sure you are consistently communicating with your customer about the ongoing payments. A payment reminder or payment receipt will suffice.
3. It is critical that you provide a clear, simple means for cancelling the subscription service.

A Final Word

You might win some chargeback disputes, but you won’t know until you try. The goal of any business should be to eliminate chargebacks as much as possible, and a proactive approach is the best way of achieving this. When chargebacks occur, choose to learn something from them. For example, do you see the same reason code popping up repeatedly? Does a streak of chargebacks correspond with any changes that you’ve made to your product or service? What comments are you receiving from customers before they file a chargeback?

Not all chargebacks are made with ill intent, and with the right perspective, they provide great insight for improving your approach to customer service. Live and learn, but make sure you’re protecting your business at the same time.