Consumer protection is one of the most pressing concerns today, with customers reported to be losing more than $5.8 billion to fraud in 2021.
Many protection techniques have come up in recent times to prevent or reimburse losses faced by customers as a result of their interaction with fraudulent businesses. One such protection technique is a chargeback, a mechanism that helps consumers get their money back for fraudulent charges.
While it has emerged as an excellent way to protect consumers, a chargeback can often affect your business negatively. In this article, we take a look at how you should work toward preventing chargebacks against your business and how they can positively impact your sales.
How can Chargeback Prevention positively affect your sales?
A chargeback is a protection mechanism that allows customers to get their money back on any fraudulent transaction they might have been subjected to. The consumer will file a complaint that the transaction was fraudulent.
If the transaction is proven to be indeed fraudulent, the vendor is held accountable to return the money. From consumers’ point of view, chargebacks are an excellent way for them to protect themselves against fraud.
From a business point of view, they can be a cause for concern. Every time you have to do a chargeback for a transaction, you lose money from your business. You not only lose the revenue you earned from the transaction but also the goods or merchandise you’ve already delivered for it.
Working on preventing chargebacks will positively impact your sales. You need to put a framework in place that doesn’t allow for fraudulent transactions to happen under your business’ name.
Let’s take a closer look at how chargebacks work and how you can work to prevent them for the betterment of your sales and business.
1. Understanding chargebacks and their prevention
The number of online transactions conducted every day is seeing a transcendental rise, with an average customer carrying out two transactions per day as a result of the digital boom we’re experiencing right now.
With such a huge volume of transactions being conducted on an everyday basis, there has also been a monumental rise in fraudulent transactions. Cybercrime has emerged as the biggest threat to not just customers, but also businesses worldwide.
When you read this guide from SEON on chargeback fraud prevention, you’ll understand that while chargebacks have given customers a chance to fight back against the frauds they are subjected to, frauds related to a chargeback itself have also emerged as a problem. You will also be able to figure out ways on how to avoid and prevent chargeback frauds.
A chargeback allows a customer to fight back against fraud. But it has a detrimental impact on your business, no matter if you are the merchant or provider of the service. You have the option to fight back against a claim but you might lose it as well.
• What does a chargeback entail for a business
A chargeback begins when a cardholder requests their credit or debit card provider to make the retailer give them their money bank that is related to a particular transaction on account of it being fraudulent in nature.
As the retailer or merchant, you have three options against a chargeback claim:
- Accept the chargeback — You pay the amount back to the customer and lose the goods, items, and merchandise that were part of that transaction. You also lose any administrative fees attached to these transactions. Most importantly, your chargeback ratio as a business increases.
- Fight against the chargeback and loss — You have to refund the amount and lose the items and any additional amount attached to the transaction. You also lose the time, effort, and resources you spent fighting back the claim. Your chargeback ratio increases.
- Fight against the chargeback and win — You don’t have to refund the money related to the transaction. You do lose the additional amount and items attached to the order. You do spend time, effort, and resources to fight the claim but it brings results to you. Your chargeback ratio does not increase.
It has been estimated that every dollar lost in a chargeback fraud costs merchants and retailers 2.4 dollars, considering the loss of resources and items associated with every transaction.
2. Chargeback prevention
As a business operating in the digital market of today, it’s incredibly important for you to take a look at the chargebacks you get charged with and prevent them as much as possible. They not only cut your profits while costing you time and resources, but they also tarnish your reputation.
No business wants to have a high chargeback ratio against it. To prevent chargeback against yourself, you need to be vigilant in your transactions and take action against suspicious actions then and there.
Take a look at the reasons for chargeback and prevent them by treating them at the core. Here are some prevention strategies based on the reason for the chargeback mentioned by the customer:
- Fraudulent — This means that the customer believes they didn’t authorize the transaction and is the most common reason cited for chargebacks. To avoid this, send your customer a receipt of the transaction as soon as the purchase happens. Also, see that the text is understandable and cannot be manipulated.
- Unrecognizable — In this case, the customer refuses to recognize the merchant or the retailer. Treat this the same way you would a fraudulent charge, by sending a receipt to them as soon as the transaction happens. See that your store name and address appear clearly in the customer’s bank transactions.
- They didn’t receive the product — Clearly indicate the estimated shipping for every product. Keep updating the customer at every point in the process. For example when the shipment leaves your warehouse, when it’s out of delivery, etc. If the shipping gets delayed, immediately contact your customer.
- Subscription issues — Some chargeback claims are about customers being charged for subscriptions they have canceled or about unfair payments. So, keep your customers updated about their subscriptions. Cancel their subscriptions right away if they ask so. Make it clear to them that they are agreeing to a recurring charge when they sign up with you.
3. Chargeback prevention positively impacts sales
The lower your chargeback rate is, the more reputed your business will be. As a merchant or retailer in today’s market, it’s extremely important to safeguard your business against chargeback. It directly impacts your sales.
First, chargeback prevention protects your revenue. A chargeback activity cuts out your revenue to give it back to the customer. So, you lose the money you had earned as well as the items you had given to the customer.
Preventing it safeguards both your revenue and your stocks as you earn for the goods you sell without losing any item. Meaning the profits from regular sales stay intact without fear of loss from a chargeback.
Secondly, chargeback prevention boosts your goodwill. More customers will be willing to trade with a merchant or retailer that has relatively lower chargeback claims against it. This way, chargeback prevention helps you boost your sales as well.
4. Chargeback prevention strategies
We talked about chargeback prevention steps a business shall take based on the reasons a customer provides for a chargeback. There are many general strategies a business shall follow to ensure smooth functioning and robust chargeback prevention in the long run.
Here are some such strategies:
• Use prevention tools
There are many tools available that safeguard every step of an online transaction for you. From address verification services to data security codes, you have the option to verify a buyer’s identity.
You might also opt for chargeback alerts and be prepared with automated responses for certain situations to speed up the process. Such tools ensure a smooth process on the buyer’s end, lessening the probability of them finding you fraudulent.
• Improve your customer service
Communicating with your customer through a transaction safeguards you against friendly fraud. Any time a customer faces an issue, you’ll be able to walk them through it.
Allow customers to reach you through different mediums such as text, chat, emails, and phone. Respond quickly and maintain a friendly tone when dealing with them.
• Eliminate merchant error
Minor lapses in the simple procedural steps majorly contribute to chargebacks from customers. Oversee your merchant’s functioning and framework for transactions to identify issues and resolve them then and there.
Remove steps that serve no purpose and simplify convoluted steps to ensure a short, simple, and easy transaction for your customers.
Preventing chargebacks to protect and boost sales
The rise of chargebacks is a direct result of the need to safeguard customers against fraud. They do, however, negatively impact businesses as they have to pay customers back and lose their products as well.
Chargeback prevention strategies such as regular overseeing of transactions and robust customer service help you prevent customers from filing for chargebacks.
It boosts your reputation as well as sales. It helps you set a transparent system where you are able to serve your customers better as well.
Let us know in the comments how you think chargeback prevention boosts the sales of a business.
Atreyee Chowdhury is a freelance content writer with more than 10+ years of professional experience. She is passionate about helping SMBs and enterprises achieve their content marketing goals with her carefully crafted and compelling content. She loves to read, travel, and experiment with different cuisines in her free time. You can follow her on LinkedIn.