Merchants Don’t Have to Accept Chargebacks—There are Ways to Fight Back
Chargebacks cost merchants more than €40 billion every year.
Additionally, thanks to fees and other associated costs, merchants lose €3.34 for every one euro of the original transaction when customers demand a chargeback. This expensive issue often leaves merchants wondering, “Is there a 100% effective solution to end chargebacks once and for all?”
The short answer is no.
Unfortunately, there is no such thing as totally foolproof chargeback protection—a fact which can lead some merchants to give up hope entirely. However, it is possible to minimise your risk, rendering chargebacks a manageable nuisance rather than an immediate threat.
Chargebacks: Knowing Your Enemy
Part of the problem is that most merchants assume all chargebacks are the same. However, there are actually three fundamental sources of chargebacks:
- Merchant Error: 10-20% of Chargebacks
- Criminal Fraud: 1-10% of Chargebacks
- Friendly Fraud: 60-89% of Chargebacks
Different strategies and solutions offer various degrees of chargeback protection from each of these sources. For example, chargeback alerts, fraud filters and tools such as Verified by Visa and MasterCard SecureCode can help merchants identify potential criminal fraud. Attention to business best practices can also prevent chargebacks resulting from merchant error.
However, recent studies suggest that as many as 86% of chargebacks could be attributed to friendly fraud. While the loss prevention tools and products currently available can go far in preventing chargebacks resulting from certain sources, they are less effective in dealing with friendly fraud. As a result, they can do little to prevent the bulk of chargebacks.
Can I Prevent Friendly Fraud?
Customers sometimes hold unreasonable standards for merchants. In other cases, merchants might mistakenly give customers unrealistic expectations for their products. Either of these communication errors can easily lead to friendly fraud.
While it may not be possible to prevent friendly fraud, there are a number of strategies which will help reduce your risk.
- Be Clear About Your Shipping & Return Policies: Be sure everyone is on the same page regarding what to expect of your services
- Build a Relationship with Your Customers: Reaching out to your customers will build loyalty and remind them that there is a real person on the other end of their purchase
- Communicate Regularly: Send out newsletters or other regular updates. This helps familiarise shoppers with your brand, your business and yourself
- Store Important Transaction Information: Hold onto transaction data including the customer’s IP address, electronic signature, shipping & billing information, delivery confirmation and any emails or messages between yourself and the customer
- Seek Outside Help: The best way to stop friendly fraud before it happens is to consult the experts
Can I Fight Back Against Friendly Fraud?
Even merchants who provide excellent customer service, employ fraud detection technology and act in accordance with business best practices are not immune to friendly fraud.
Dedicated fraudsters may still try to cheat you out of your hard-earned revenue by committing intentional friendly fraud. When that happens, it’s time to take up the fight against fraud by engaging in chargeback representment.
When a customer intentionally commits friendly fraud, they’re telling the issuing bank something that is not true. The fraudster might make any number of different claims in order to initiate a chargeback, including:
- The merchandise never arrived
- The item was not as it was described online
- An unauthorised user made the purchase
- The merchant would not respond to questions/concerns
In order to see the chargeback overturned, you will need to provide evidence that the customer’s claim is not true. This evidence can include everything from transaction records to shipping confirmation and address verification.
Seek Outside Help
It’s important that merchants take a stand against friendly fraud and engage in chargeback representment. When merchants challenge fraudulent chargebacks, they stand a fighting chance of recapturing revenue and ensuring the long-term sustainability of their business. At the same time, representment also improves the merchant’s reputation with issuers, enticing banks to practice more due diligence before allowing a chargeback.
Unfortunately, it’s never a sure bet. On average, merchants win 21% of the chargebacks they dispute. In many cases, merchants do not achieve their desired results because they do not have the expertise necessary to craft a winning representment case. Therefore, we recommend that merchants turn to third-party support for expertise on the subject of chargeback representment.
Merchants who outsource their chargeback representments can see their win rates more than double. In addition, more effective representment will lead to a gradual reduction in the overall frequency with which a merchant experiences chargebacks—sometimes dropping by as much as 20% within 90 days.
Merchants Must Win the Fight Against Chargebacks
There is not a 100% guaranteed effective solution for all chargebacks. However, merchants who engage in chargeback prevention and representment will see a remarkable reduction in the number of chargebacks they experience.
With stakes so high, merchants simply cannot afford to let chargebacks go unchallenged.