How to Handle Chargebacks: 7 Easy Steps to See Better ROI
Handling chargebacks on your own can be overwhelming. This growing threat may be one of the biggest challenges you face as a card-not-present merchant.
Regardless of whether they’re legitimate or fraudulent, chargebacks drain your revenue, tie up valuable resources, and threaten the longevity of your business. Even so, a lot of merchants tend to treat chargebacks like an unavoidable “cost of doing business.”
Nearly half of all merchants, in fact, believe customer disputes are inevitable. That kind of attitude can make it seem like dealing with chargeback management is not even worth the effort.
In reality, handling chargebacks is very doable. You just have to break the process down into a few manageable steps. Let’s take a look at each of these stages in a little more depth.
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- Prevent Double Refund Chargebacks & Unnecessary Losses
- 10 Common Misconceptions about Chargeback Win Rates
- What’s an “Acceptable” Chargeback Rate? Why Does it Matter?
- Looking for a Chargeback Solution? 10 Questions to Ask First
- How to Find the Right Chargeback Management System
- Do Chargeback Bans Actually Help Stop Disputes?
Step 1 | Stop the Bleeding
When you're dealing with chargebacks, the first thing to do is move quickly to stop the problem from getting worse. This is really important to keep your business healthy and get ready for more detailed solutions later.
We strongly recommend that you:
Step 2 | Understand Chargeback Sources
You have alerts and other tools in place to serve as a “stop gap” measure and prevent the problem from getting worse. The next step is to really dig into where these chargebacks are coming from. This means looking beyond the reason codes you get, which can often be misleading.
In reality, all chargebacks come down to one of three main causes. Let's break down what these are:
Criminal Fraud
This is when someone uses stolen card information to buy things. It's outright theft. When the real card owner notices charges they didn't make, they'll ask for a chargeback. To fight this, you need good security measures like fraud detection tools that can spot suspicious activities.
Merchant Error
Chargebacks sometimes happen because of mistakes on the merchant's part. This can include things like charging a customer twice, not delivering what was promised, or being unclear about your return policies. These errors can lead to misunderstandings and unhappy customers, resulting in chargebacks. To prevent this, make sure your processes are tight and customer-friendly.
Friendly Fraud
Friendly fraud is a bit tricky. It happens when customers make a purchase and receive the product or service, but then file a chargeback, claiming they never got it, or it wasn't as described. Sometimes it's a genuine mistake, but other times it's done on purpose. To tackle this, keep detailed records of transactions and customer interactions.Step 3 | Identify the Source of Your Disputes
Once you know the three main causes of chargebacks, the next step in how to handle chargebacks is to find out which ones are affecting your business. This is about digging into your data and figuring out the patterns and reasons behind the chargebacks you're facing.
Start by looking closely at your transaction records and customer interactions. Check for any trends; are disputes happening more with certain products or services? Do they tend to come from specific locations or customer groups? Look at the reasons given for the chargebacks and see if they match up with your sales data. This can be a bit complex, but it's worth it because it gives you real insights into what's going on.
Identifying the source of your disputes is key to solving your chargeback problem. When you know where the issues are coming from, you can take specific actions to address them. For example, if you find a lot of chargebacks are due to merchant error, you can work on improving your processes or customer service. If it's criminal fraud, you might need better security measures.
If diving into data isn't your thing or you want a more streamlined approach, there are tools out there to help. One such tool is Intelligent Source Detection™. This technology does the heavy lifting for you. It analyzes your transactions and pinpoints the sources of your chargebacks. It can tell you whether they're coming from criminal fraud, merchant error, or friendly fraud. This takes a lot of the guesswork out and helps you focus on fixing the right problems.
Step 4 | Prevent Criminal Fraud Chargebacks
Now that you've identified the sources of your chargebacks, it's time to focus on preventing them. You can start by tackling those caused by criminal fraud.
Criminal fraud chargebacks happen when someone illegally uses another person's card information. The good news is that you can significantly reduce these kinds of chargebacks by creating a customized prevention strategy that uses the right tools.
Here are a few ideas to get you started:
Step 5 | Prevent Merchant Error Chargebacks
After addressing criminal fraud, the next step is to tackle chargebacks caused by merchant errors. These chargebacks occur due to mistakes or oversights in your business processes. AT this stage, the key to how to handle chargebacks is to identify where things are going wrong, decide on the necessary changes, and put in place targeted strategies to avoid these errors.
Let’s break these down:
Step 6 | Engage in Tactical Representment
Managing chargebacks is about more than prevention. According to Visa, friendly fraud will account for roughly 75% of all chargebacks by 2025.
While it may seem disheartening that so many disputes are nothing more than dishonesty on the part of cardholders, the situation isn’t as bad as it seems. While you can’t contest chargebacks resulting from merchant error and criminal activity, you can beat disputes stemming from friendly fraud.
Fighting friendly fraud yields multiple positive benefits. It allows you to recover revenue that would have otherwise been lost. It improves your standing with banks, potentially leading them to perform more due diligence in judging future disputes. Engaging friendly fraud also discourages cardholders from committing friendly fraud in the future; as many as 40% of cardholders who commit friendly fraud will do it again within 60 days.
Fighting chargebacks through representment, however, requires a substantial investment in resources. Each time you challenge a claim, you will need to create an entire rebuttal package that includes a claim-specific rebuttal letter. You’ll also need compelling evidence demonstrating that you upheld your end of the transaction.
A few automated representment services are available, but they are ineffective. They produce generic, incomplete, lackluster responses. In contrast, Tactical Chargeback Representment services from Chargebacks911 involve humans employing their expertise to create dynamic cases that deliver the highest ROI.
Step 7 | Get a Long-Term, Professional Partner
It’s natural to think that in-house management would be the best way to handle chargebacks. After all, who knows more about your business than you do?
Actually… that’s exactly the problem.
Being an expert on your business doesn’t mean you’re an expert at knowing how to handle chargebacks. In-house dispute management and prevention is actually very inefficient. You’ll need to keep a close watch on all transactions, invest time and energy into fighting invalid chargebacks, and stay on top of new fraud threats and ongoing changes in regulations.
Even worse, statistics show that DIY representments have a shockingly low success rate. In other words, handling chargebacks requires a lot of investment… but real return on investment is rarely — if ever — achieved.
In-house teams don’t have the expertise or the resources to effectively manage chargeback losses. Your energies are better focused on serving your customers and growing your business.
At Chargebacks911, our years of experience have taught us how to handle chargebacks. We offer the most comprehensive, custom-tailored chargeback management solutions available. Experience-based strategies, industry-defining technologies, and end-to-end transparency combine to make Chargebacks911 a true professional partner for merchants who are serious about dealing with chargebacks.
Ready to start saving with our data-driven technology platform? Contact us today for a no-obligation demonstration.
FAQs
How are chargebacks handled?
Chargebacks are handled by investigating and responding to customer disputes over transactions involving the merchant, the customer's bank, and sometimes a payment processor to determine if a refund is warranted. This process aims to resolve issues like fraudulent charges, merchant errors, or unsatisfactory products or services.
How do you respond to a chargeback?
To respond to a chargeback, provide evidence such as transaction records, customer communications, and delivery confirmations to the bank or payment processor, demonstrating that the transaction was legitimate and met all agreed-upon terms. This documentation helps to contest the chargeback and potentially reverse the funds transfer.
How do you manage chargebacks?
Managing chargebacks involves implementing preventive measures like fraud detection, clear customer communication, and efficiently responding to disputes with relevant documentation to contest unwarranted chargebacks. It also includes analyzing chargeback patterns to identify and address underlying issues in business processes.
How do you resolve chargeback issues?
To resolve chargeback issues, promptly address and contest disputes with evidence supporting the legitimacy of the transaction, and implement strategies to prevent future occurrences by identifying and rectifying the underlying causes, such as improving customer service or enhancing fraud prevention measures.
How do you protect yourself against a chargeback?
To guard against chargebacks, make sure you have strong fraud prevention systems in place, communicate clearly with your customers, and always keep a detailed record of all sales and customer conversations. Staying on top of these practices and tweaking them as needed will help you stay ahead of potential chargebacks.
