How to Prevent Chargebacks

April 8, 2021/ Jarrod Wright /

Chargebacks may do serious damage to a merchant’s bottom line. The can lead to added fees, the cost of lost merchandise, shipping costs and transaction fees, and a chargeback rate that exceeds the acceptable threshold. So, it’s common sense that the more chargebacks a merchant prevents, the more revenue they will retain for their business.

Unfortunately, most disputes are invalid, and chargeback abuse is costing merchants billions of dollars a year. Many merchants attempt to manage chargebacks through their own efforts and it often has a low rate of success. Unfortunately, this is because the chargeback system is much more complex than most people realize.

Managing chargebacks is still possible, though, provided that the right information is obtained.

Top 10 Chargeback Prevention Tips

There are several steps merchants should take to prevent chargebacks and ensure they protect their business. Here are 10 important points to keep in mind:

1. Eliminate Missteps: Merchants ought to be aware of situations involving avoidable errors, such as processing a transaction more than once or entering the wrong transaction amount.
2. Use Available Fraud Detection Tools: 3-D Secure (Mastercard SecureCode and Verified by Visa), card security codes, Address Verification System, and fraud scoring are all effective chargeback prevention tools.
3. Request Authorization: The issuer’s regulations should always be followed for any authorization request. Transactions that receive a “denied” authorization message ought to be cancelled immediately.
4. Watch for Red Flags: Transactions always need to be examined for possible fraud triggers. If fraudulent activity is expected, the cardholder must be validated before proceeding.
5. Prioritize Contact Information: Customers should always know how to contact the merchant. It should be easier for them to call the merchant’s customer service line than contact the bank.
6. Use Clear Billing Descriptors: The merchant’s business name should be as recognizable as possible on the cardholder’s statement. A descriptor should include contact information and a brief description of the product.
7. Accurate Advertising: The merchant needs to review all catalogs, as well as their website, to ensure that product descriptions and photos are accurate.
8. Availability: If a customer tries to contact the merchant, whether by phone, email, or social media, it’s essential that each channel is monitored, and a response is provided in a timely manner.
9. Process Refunds Promptly: Returns should be handled quickly, and cardholders should know when to expect a credit on their account.
10. Keep Customers in the Loop: Buyers need to know when an order will shipp and when it’s supposed to arrive. Merchants must inform them regarding all other important details, including backordered items or delayed deliveries.

Stop Chargebacks Before They Occur

If a merchant decides to fight a dispute, they must prove that a chargeback was invalid by providing compelling evidence. This is a process called “representment.”

Representment can help recapture revenue that would otherwise be lost to a chargeback. It’s important to understand that there’s still no guarantee of success, though. Thus, the best approach is still to prevent chargebacks before they even occur.

Merchants are responsible for reviewing their policies and procedures regularly and at each step of the transaction process to identify and eliminate merchant error. It’s also important to adopt a comprehensive and multi-layer fraud strategy to tackle the criminal aspect.

Due to the dynamic nature of fraud, preventing chargebacks is easier said than done. A static, one-size-fits-all approach won’t work for everyone, and risk mitigation strategies must be able to adapt and evolve as technologies shift. The tips outlined in this article are a good starting place for chargeback prevention, but merchants also need to remember that the work never really stops. They need to aggressively tackle the chargeback problem and remain vigilant throughout every step of the process.

Last Update: April 8, 2021