How Can I Reduce the Number of My Chargebacks?
February 11, 2009
In the beginning stages of an e-commerce business, everything seems to be simple. As you begin to realize that you’re handling complex financial transactions in a virtual environment, you start to become worried about whether or not you can trust the information that you’re receiving. Are you getting legitimate charges or is someone trying to get something for nothing? Add to this worry the problem of chargebacks and it’s enough to make you want to quit everything. But that’s not necessary when you understand that you are the one that’s in control of the situation.
First of all, chargebacks can occur for a number of reasons – fraud, doubled transactions, unauthorized use of a credit card, etc. While some of these situations seem like innocent mistakes, the truth is that even the smallest mistakes will take time and effort from the merchant account provider that you use to handle the disputes. And their efforts add up to charges for your business – charges that you can avoid.
Chargebacks can be controlled in a number of ways. The most obvious way to control these issues is to make sure that the person that is paying you for a service is actually that person. When you’re in a virtual e-commerce environment, this can seem like a tricky thing to do. However, all it takes is making sure that you’re getting identifying information that will assure you of the buyer.
• Name
• Address
• Phone number
• Email address
• Credit card number
• Expiration date
• Verification number on credit card
• Exact name that’s on the credit card
Once you’ve gathered this information, you can be assured that the person is actually holding the card in their hands – though it could still be someone that doesn’t actually have authorization to use the card, but the chances are diminished.
Aside from that, you can also use services such as Verisign and preCharge to check the validity of your transactions. These services will check the information as the customer is entering it into the payment process. Without the knowledge of the customer, the information is given to various checking services that then accept or reject the information. This allows fraudulent transactions to be rejected BEFORE they go to the merchant account.
Why do you need services like this when you could just check the customer’s information? Identity theft is becoming rampant in the world these days. Thieves are smarter and know what information they will need to have in order to gain access to a credit card account. There are some thieves that will be deterred by more information gathering, but then there are others that will circumvent the process. Or at least, they will try. With services like preCharge and Verisign, the merchant is able to check the validity of a transaction in a more precise manner, allowing you to catch more crooks and prevent chargebacks.
Chargebacks are a pain for you and for your merchant provider – why not look into lightening both of your loads? In the end, everyone will win.
What is a Chargeback?
December 23, 2008
When you order something online, you’re charged to your cerdt card account for the transaction – everything is fine. However, when you get your monthly statement and there’s a charge that you didn’t approve, you want to get your money back. You call your credit card company or the company that charged you and you get a refund for the charges – this is called a charge back. The money is being ‘charged back’ to the credit card account.
There are a number of reasons why a chargeback may be issued:
- There was an error in the transaction
- The customer accidentally used an expired card
- Someone is disputing the charge
- Fraudulent use of a credit card
While this process works out well for the customer, it doesn’t always make a business owner feel as good. Each time a charge is given back to a customer, they are losing money from the sale – even if it wasn’t a legitimate sale. In addition to losing that money, many merchant account providers can also charge a fee to handle that chargeback process. If there are a lot of chargebacks, the fees can begin to be excessive.
This is why many merchant account providers will have a preset limit that businesses need to keep in their merchant accounts to cover chargebacks. When there isn’t enough money in the merchant account after you have taken some out, the merchant account will have to use their own funds to refund the customer – and they would rather not do this.
There are even a few merchant account providers that will be hesitant to accept certain businesses as clients because of their probability for chargebacks. In the case of businesses that offer services that can be paid for with credit cards, there is a higher likelihood of these businesses receiving calls about charges not being authorized – so, more chargebacks. But in the case of businesses that provide goods, this is less likely.
Merchant account providers may also increase the levels of fees that businesses will have to pay when they are going to have a high likelihood of chargebacks. These fees will help support the extra processing and extra time that will be given to managing the account’s activities. They will also want to be paid for the time that they will spend handling any disputed claims that take more than just a phone call to resolve.
While this doesn’t mean that businesses shouldn’t offer chargebacks, it does mean that businesses should be aware of how their customers are giving their information. If you create a system in which you have a superior product or good, you will have fewer returns, of course, but if you also have a secure website in which customer information is not subject to hackers and other problems, you will also reduce the possibility of chargebacks.
Chargebacks are just a fact of life for online businesses, however, they can be controlled with some close monitoring of your website’s procedures as well as who can see your customers’ personal information.
Understanding Chargebacks
November 15, 2008
A chargeback happens when a customer contacts his or her credit card-issuing bank and requests for a refund for a particular purchase that they made through their credit card. The reasons for chargebacks can vary greatly, but most are usually a result of dissatisfaction in the transaction.
The customer might or might not have informed the merchant about solving the situation before making contact with their issuing bank; they might even be making up the whole story. Unfortunately for merchants, it is their responsibility to ensure smooth transactions and customer satisfaction. Failure to do this can lead to chargeback.
Most common causes of a chargeback:
- Fraudulent transactions. Most chargebacks result from fraudulent transactions wherein the credit card was used without the proper authorization or the consent from the cardholder (i.e. due to theft or loss of card).
- Buyer-seller disputes. Chargebacks also can occur as a result of the buyer’s dissatisfaction on the product. When the buyer does not get the expected product quality, he or she can cancel the order anytime and apply for chargeback. This kind of dispute usually happens when the customer receives a defective item, an item different from what was agreed upon, or worse, never arrived at all.
- Technical problems. These involve unexpected technical complications between the issuing bank and you, the merchant. Common problems include being charged the wrong amount, being billed twice for the same transaction, as well as authorization problems (transaction was declined by issuing bank but customer was still charged) may be applicable for chargeback.
Avoiding Chargeback
Much too often however, chargeback is used by fraudulent users who take advantage of this credit card feature to get their money back without a valid reason. These are the types that merchant should avoid at all times. To do so, merchants must ensure that the cardholder would not have any reason whatsoever to make a dispute. Here are a few tips to minimize the possibility of chargebacks in your successful transactions:
- When putting up your business, make sure that you use a clear Doing Business As or DBA name that customers will easily recognize. Vague company names that fail to accurately describe what you do might either not sell, or confuse your customers when they review the billing statement sent to them at the end of the month. Unrecognized DBA names reflected on billing statements is a very common cause of chargebacks.
- Put your contact number on your customers’ billing statements. If your DBA is unrecognizable, they can call you up immediately to check who you are and what the charge was about.
- If chargeback is requested and a retrieval request was sent to you, reply to it at once. You are only given limited time to resolve any chargeback so that if you pass up on this time, you will forfeit your chance to counter the chargeback. In case the issuing bank still has more requests or questions, there will still be enough time to get those important information from you.
- Do not, at all times, accept expired credit cards.
- Get full authorization for each sale. If the transaction is declined, never accept them or split them into small amounts.
- Always make sure that the quality of the items you sell is standard and will meet customer expectations. Work closely with your customer so that you can establish a mutual buyer-seller relationship and a satisfactory solution to potential problems.
- If you get unusually large or suspicious orders, always double check to see whether the transaction is legitimate. Verify the customer’s address, and check the customer’s name, phone number and address with the issuing bank. Also, try to use the anti-fraud services being provided by the processing bank such as AVS and CVV2.
- Always get a signed proof of delivery. Make sure that you will be able to show a shipping tracer log which proves that the customer received the goods ordered.
- Only charge the client’s account when the goods have been shipped. If there are delivery delays, do not process the charge just yet.
- Be careful about high-amount orders that are requested to be sent immediately (the following day).
- Make sure that you provide accurate images and descriptions of your products in your website. You should tell your customers exactly what to expect to prevent dissatisfied customers.
Merchants are at the losing end when chargebacks are concerned. But avoiding these instances is possible. It only takes proper caution and doing what you are set out to do: make your customers happy with each sale.