Chargeback Prevention Tactics for E-Commerce Businesses

By Jessica Velasco

Chargeback management is a massive undertaking. If you're a business owner and you've had to deal with a chargeback, you know how maddening the experience can be.

In reality, chargeback management is two-fold: chargeback prevention and chargeback representment (attempting to reverse the chargeback). Chargeback prevention is far easier than representment; however, it still isn’t a simple process. Unfortunately, there are no quick-fix, easy-to-implement strategies that will totally eliminate your risk. If you sell things online, here are prevention tactics you should be aware of:

1. Know possible indicators of fraud

Fraud is one of the biggest instigators of chargebacks. Fraudsters gain access to credit card information and use account numbers to make unauthorized purchases.

Unfortunately, in addition to being some of the most prevalent chargebacks, they also happen to be the most difficult to fight. If you get a chargeback based on true fraud (not “friendly fraud”), you will almost certainly be out the money. This is why it is important to do all you can to detect and prevent potentially fraudulent transactions.

Visa created a list of potential indicators of fraud. Take a look at this list and be aware of the common red flags.

2. Use fraud prevention tools

Even if you do your best to identify these scammers, there is a good chance that some will still slip past unnoticed. That’s where technology can lend a helping hand.

There are various fraud prevention tools available. If you aren’t already using them, consider adding the following to your checkout process:

* Verified by Visa

* MasterCard SecureCode

* Card Security Code

* Address Verification Service

3. Let your acquiring bank help

There are several ways your acquiring bank can help you prevent chargebacks:

• Check how your business name appears on a customer credit card statement. Based on the default set by the acquiring bank, customers might not know who is charging them. In these cases, it is understandable that they would file a chargeback out of confusion. The name that appears on a customer’s statement doesn’t need to be your official business name; you can use your URL, the name of a product that is commonly associated with your business, or any other phrase that would make it obvious who is charging their card.

• Create a black list. If you do come across a fraudster, block that person from shopping with you again. You can block someone based on their name, IP address, or country.

• Create a whitelist. A whitelist is the opposite of a black list. Rather than block a few people, you block everyone and allow a select few through. For example, your whitelist could limit purchases to North America and the UK.

4. Check your website design

The information—or lack thereof—found on your website might be causing chargebacks.

• Product descriptions need to be as accurate and detailed as possible. Let consumers know exactly what they are getting. Mention color, size, materials used, construction techniques, and more.

• Include lots of images. Seriously, the more the better! Show the item from different viewpoints. Highlight special features. Demonstrate the item in use.

• Double-check your return policy. Do customers know how to get a refund? Do they know what is involved in the exchange process? If not, they might contact the bank to get their money back. If your policy is too complex or hidden somewhere on your site, the unsatisfied customer will think it is easier to call for a chargeback.

• Ensure your contact information is easy to find. Not everyone prefers the same method of communication, so provide as many alternatives as possible. At a minimum, you need to share your email address and phone number.

5. Consider shipping

Another popular chargeback reason code is “products or services not delivered.” This type of chargeback is commonly used by two types of people: the fraudster and the impatient shopper.

Fraudsters are trying to get something for free. This is called friendly fraud. The shopper says the item wasn’t delivered when it actually was. To discourage friendly fraud, consider delivery confirmation. If customers signs for their deliveries, there is less likelihood that they will file a chargeback. And if they do, you’ll have some proof to uphold your dispute.

To deal with shoppers who aren’t patient enough, thoroughly explain the amount of time it will take to process and ship an order; also let customers know when an item will be shipped and how long it will take to be delivered. When you send a delivery confirmation email for an order, include the anticipated delivery date. This will help customers better understand exactly when the item should arrive.

6. Assist your customers

Providing adequate customer service is another significant chargeback prevention tactic. Here are some tips:

• Answer the phone within four rings.

• Send an automated email reply to any inquiries you receive via an online contact form or email message. Then, send a real reply—addressing the customer’s needs—within a few days. Be sure to mention in your auto-reply when the customer can anticipate a response. To you, three business days may seem quick; to a disgruntled shopper, it could seem like an eternity.

• Check your social media accounts frequently. Customers may use these accounts as a form of communication. Don’t ignore these messages.

• If the customer asks, promptly terminate any automatic renewals or reoccurring payments (memberships, subscriptions, etc.).

Chargeback management is complex; unfortunately, it is also a necessity of doing business. Without giving chargebacks the respect they deserve, they could be your downfall. Nearly half of all e-commerce businesses close up shop because of chargebacks. Don’t let that happen to you.