For online merchants, accepting credit cards over the phone, or via digital transaction, is standard operating procedure, but not without certain risks. Chargebacks are a primary concern for businesses that conduct e-commerce, and they can be very expensive due to lost sales and stiff penalty fees.
Chargebacks can happen for any number of reasons.
- The merchant fails to issue credit for returned goods in a reasonable time
- The merchant fails to deliver the goods or services
- The credit card was stolen
- The card was used without the cardholder’s knowledge or authorization
- There were technical issues during payment processing
- The merchant disregarded a declined authorization and overrode it
- The customer didn’t recognize the transaction on their credit card statement
- Consumer fraud: the customer ordered, paid for, and received the goods or services, only to challenge the charge because he/she never intended to pay
To reduce the risk of disputes and chargebacks, be aware of red flags and investigate anything suspicious. Warning signs include:
- Bulk orders that seem strange, especially from a new customer
- Multiple orders in a short time period
- Orders that are made with an expired credit card
- Disparities between the billing and delivery addresses
- Orders with multiple attempts on the card number or expiration date
- Multiple orders with different cards, but one shipping or billing address
- International shipping where address verification is impossible
There can be legitimate reasons for any of these incidences, but your best protection is to contact the cardholder or issuing bank to verify the order. There are ways to protect against chargebacks; most involve conscientious customer service and strict adherence to safe payment processing procedures.
There are a few key qualities that merchants should instill in their customer service departments that will not only help to keep customers happy and returning, but they will also help to prevent chargebacks:
1. Clear descriptors
Be sure your company name and a clear transaction description will appear on the customer’s credit card statement. If a different name will appear on the statement, make sure your customer is notified
2. Email purchase confirmations
Send an email confirming the customer’s order that includes order status, company contact information, and expected shipping date
3. Email shipment confirmations
When you ship the goods, send another email with information about the carrier and any tracking information, such as tracking number or registered mail number
4. Offer simple and easy returns policy
Make returns and shipping policies clearly visible on your website, in your emails, and on your invoice and shipping documents. Some companies go so far as to require the customer to “Accept” their terms and conditions before the order is submitted
5. Reimburse customers quickly
Issue refunds or offer “in-store” credit promptly for returns, especially in cases of failed delivery or defective goods. In addition, be sure to make it easy for customers to ship their returns—you don’t have to offer free returns, but it does have to be easy
6. Keep your customer records up-to-date
Ideally, you’ll want a purchase history and you’ll especially want a record of any returns or disputes
Apart from offering top-notch customer service, it is also crucial to have proper safety measures in place. There are a number of ways you can arm your business with the appropriate security ammunition to protect it from chargebacks, fraudsters, and hackers:
- PCI DSS compliance
Make sure you choose a secure credit card processor, and that they are Level 1 Payment Card Industry Data Security Standard (PCI DSS) certified.
- Follow your PSP’s guidelines
Always follow the terms, conditions, and procedures of your merchant account agreement because if you follow your payment processor’s guidelines, you are far less likely to incur a chargeback.
- Don’t accept multiple attempts to pay on the same card
While people can and do make mistakes entering their card information, more than one try could mean someone is guessing about the card number, the CVS security code, or the expiration date.
- Confirm the credit card’s details
Confirm that the card number, CVS security code, and expiration date match the information on record with the issuing bank; note the date, time, and approval code in your records. These details are verifiable and help to prevent fraud on both sides of the transaction. Failure to verify the information means you are responsible for a bad transaction.
- Use an Address Verification Service or other address management system
The major credit card companies provide an automated service, as do many shipping carriers. There are even manual methods to confirm that the billing address associated with the card and the address given during the order process match. You can also verify shipping addresses.
- Create invoices
Always create an invoice with the customer’s information, including shipping and billing addresses. In addition, include the purchase date, quantity, price and description of the items, and payment details. Payment details should include the last 4 digits of the card number, and approval or transaction number. Finally, list the shipper and tracking number, if applicable.
Chargebacks can damage your business and your financial reputation. You can avoid them and the consequences through providing outstanding customer service and by ensuring that your business has the highest level of security measures in place