Sarah Elizabeth
Sometimes, e-commerce transactions just don’t go as planned. Maybe shipping and delivery took far longer than promised. Maybe the customer’s child got hold of the credit card and snuck away to make some unauthorized purchases. Or maybe the customer meant to return an unwanted birthday present, only to find they were just outside the return window.
Customers often turn to chargebacks to get their money back when things don’t go right. But it’s an expensive problem for merchants.
Chargebacks cause merchants to lose nearly $11.2 billion every year. The cost of a chargeback routinely exceeds $75 per dispute — which is often more than the value of the transaction itself.
To prevent these losses, it’s helpful to understand when chargebacks are most likely to happen. Here are five common chargeback reasons, along with guidance on how to avoid these sticky issues.
1. Item Not as Described
Sometimes, a customer receives their product but files a chargeback because the item they received didn’t match the description on the merchant’s website. Maybe the item was damaged, or the customer received the wrong color, or the customer might even feel the item’s size is significantly different from what the product listing said.
How to Avoid Chargebacks
Ensure product descriptions are complete and comprehensive. That means including product dimensions, colors, materials, and any damages or defects. Product photos from multiple angles can also eliminate confusion, while videos of the product in use can also help customers ensure they’re getting exactly what they want.
2. Subscription Issues
Customers are often required to enter credit card information when subscribing to free trials … but then they often forget to cancel those trials before they end. Recurring subscriptions can also produce confusion for customers. They may not realize how often they’ll be billed, and after time, they may even not remember what the subscription is even for.
When these unexpected recurring charges hit their credit card statements, it’s sometimes easier to simply file a dispute with the credit card company rather than trying to go through the merchant’s customer service to resolve the issue.
How to Avoid Chargebacks
One of the easiest ways to avoid chargebacks on subscription-based services is to not require a customer enter their credit card details for the free trial in the first place. After all, free should be free. But for merchants who fear losing out on a sales opportunity and want to require credit card information, give customers plenty of advance notice each time the subscription renews, and provide ample details about what customers can expect to see on their credit card statements.
Similarly, cancellation and billing policies should be clearly stated on websites and in all communications with customers. If a customer does cancel, make sure the cancellation is processed in a timely manner.
3. Innocent Mistakes
Sometimes, chargebacks happen in error. In such instances (also known as friendly fraud), a customer makes an honest mistake when they dispute a transaction that is actually legitimate.
For example, consider when a child makes in-game purchases without first consulting the parent. When the charge appears on the credit card statement, the parent files a chargeback because they don’t recognize the charge. Or, consider when an ordered item is on backorder. The merchant may wait to charge the customer until the item ships, but by then, the customer may have completely forgotten about the order and file a chargeback when it hits the credit card statement.
How to Avoid Chargebacks
Encourage customers to sign up with their cardholder to receive notifications by text or email each time their credit card is used for a transaction, giving them the opportunity to immediately confirm the legitimacy of a transaction.
Merchants should also periodically review the company descriptor that customers will see on their credit card statements when they make a purchase. If the company has both a legal trading name and a more recognizable brand name, they should consider using the brand name — and also maybe the web address – on the descriptor to minimize confusion.
4. Dishonest Customers
While some customers make honest mistakes, other customers want to have their cake and eat it, too. Some place legitimate orders with the intent of trying to get free products. Others may experience buyer’s remorse after making a high-priced purchase. Still other customers may have missed the window for returning a product but still expect to get their money back. Whatever the reason for the dispute, these customers are using chargeback fraud as a way to try to game the system and get an undeserved refund.
How to Avoid Chargebacks
Because these are legitimate customers placing orders, there’s little about the customer or the transaction itself that would generally raise any red flags. In these cases, merchants can try to prevent chargebacks by taking steps to prevent friendly fraud in the first place, like:
- Clearly state return and refund policies on websites, order confirmations, receipts and email correspondence
- Make it easy for customers to get in touch with customer service teams, including 24/7 phone lines, emails, chat, and social media
- Maintain good relationships with customers and encourage them to contact merchants with any concerns about an order
- Keep customers informed about the status of their order, from the time the order has been placed to the time it’s marked as delivered.
5. Card-Not-Present Fraud
A significant percentage of chargebacks stem from fraudsters compromising the sensitive financial information of an individual and then using that bank account or payment card information to make fraudulent purchases.
When customers find their credit cards have been compromised, their first course of action is generally to call their credit card companies, dispute the fraudulent transactions and shut down their credit card account
How to Avoid Chargebacks
This is one of the harder types of fraud to prevent and dispute, because customers have done nothing wrong. In these instances, e-commerce merchants will want to ensure they have a robust fraud protection solution in place that can detect the subtle nuances of fraud and stop fraudulent transactions from ever processing and becoming chargebacks.
But even merchants with the most advanced systems may occasionally find themselves the victim of fraud and chargebacks. That’s why they need the guaranteed protection that comes with the merchant chargeback insurance ClearSale offers. If we approve a transaction that turns out to be fraudulent and results in a chargeback, we’ll pay the entire amount of the chargeback — guaranteed.
Interested in learning more about how you can gain the peace of mind that comes with knowing your business is covered no matter what happens? Contact a ClearSale analyst today.
