Businesses are thrilled about the recent rise in eCommerce activity. But they’re far less excited about the corresponding increase in chargebacks. Merchants lose $34 for every $1 in chargebacks, and this is expected to increase to $193 by 2023.
Chargebacks are a type of consumer protection provided by payment card issuing banks. They’re designed to address problems like processing errors or online orders that fail to arrive. When a customer disputes a charge, the payment card issuer returns the payment transaction to the merchant as invalid and unpaid. While chargebacks can be useful to address customer dissatisfaction and mediate disputes between businesses and consumers, they’re notoriously difficult for merchants to manage. What’s more, they’re frequently an indicator of fraud. An overwhelming 81% of chargebacks filed are unsupported by valid reasons.
What can merchants do?
The good news is, the chargeback mechanism is meant to protect merchants as well. When a consumer disputes a charge, the merchant has an opportunity to present evidence to the payment card issuer to demonstrate that the charge is warranted. Businesses should therefore keep good transaction records, capture all required authenticating data from every transaction, and adhere to all card related security protocols. They should respond promptly to all requests for information from the issuing bank.
Other measures help manage chargebacks even before they happen. Chargebacks can be prevented with clearer communication and better customer service around product returns and delivery. The cancellation and returns process should be communicated clearly and simply to customers and the policies should be posted on the store website. Orders should be shipped with tracking numbers and delivery confirmation. Businesses can also help by making it easy for customers to connect with them to resolve any returns, delivery or product replacement issues.
Merchants should maintain high clerical standards to avoid chargebacks due to numerical errors or double charges. Details matter and can help with fraud prevention by differentiating legitimate disputes from questionable ones. Customers often dispute charges simply because they see an unfamiliar merchant name on their billing statement. A simple way to prevent chargebacks is to ensure the company’s common business name appears on all statements.
What about Chinese mobile payments?
Another way to avoid chargebacks is to offer different payment options. Many merchants offer Chinese mobile payment options, such as Alipay and WeChat Pay, because there’s no risk of chargebacks. When customers purchase products and services using these platforms, the customer’s financial institution authorizes each payment and guarantees the merchant will receive the funds. It’s a bank-to-bank direct deposit. And, in the case of fraudulent or disputed transactions, Alipay and WeChat Pay absorb the costs rather than passing them on to merchants.
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