The best way to deal with the problem of chargebacks is to prevent them from occurring in the first place. By taking adequate action before processing sales, one can minimize the risk of chargebacks considerably. These tactics will help a merchant reduce their exposure to chargebacks.
Offer a Quality Product
One of the most common causes of chargebacks is customer dissatisfaction with a product. Unlike a traditional brick and mortar store setting, customers do not have the opportunity to see, touch and evaluate a product as completely. In large measure, they are buying sight unseen when conducting business on the internet.
Many customers receive the products they order and are immediately disappointed. They do not feel the product was able to live up to the marketing that led them to place the order and then seek redress by petitioning their credit card issuer for a chargeback on the purchase.
Even when a project does basically live up to its pre-sale hype, some consumers will be tempted to utilize a chargeback simply in order to get the item for free. This is sometimes referred to as “internet shoplifting” or first-party credit card fraud. The basic key fending off these situations is to provide a product that is, without doubt, even better than advertised.
By over-delivering, a merchant can cut down on chargebacks considerably. Anyone hoping to successfully operate an online business should realize that product quality is essential to reducing chargebacks. If one is able to provide customers with products that truly meet their needs and expectations, one of the biggest motivators underlying chargebacks can be completely avoided.
Offer a Clear Product Description
There are those consumers who are unhappy with the quality of a product who create chargebacks. There are also those who simply did not get what they thought they were buying. These disgruntled customers can be a major source of chargeback grief.
One should not overestimate the intuitive skills or ability to “read between the lines” of the average internet consumer. People will find ways to be confused if a merchant does not take the initiative of completely explaining a product, its uses, and all other relevant details.
Chargebacks stemming from poor product description are generally not due to an intentional effort on the part of the merchant to deceive a consumer. However, great marketing can sometimes lead merchants to stop short of full explanation or disclosure in order to make a product more attractive. This approach almost guarantees that chargebacks will result.
Merchants should be up-front and clear about what they are sending. Awesome sales letters and marketing tools may turn a buyer into a looker, but one must remember to provide the consumer with all relevant information at some point prior to processing the actual sale. This product description should be clear, readable and uncluttered with adjectives designed to market the product.
Let’s return to John Acme’s widget business. John wants to make sure customers know what they are really buying. He supplies a representative photo, along with all product specifications. However, he believes the specifications make for dull reading and fail to capture the spirit of his widget-peddling site. John edits the text accordingly. What once read: “Each widget is 7” tall, weighs 4” and is painted red” is then transformed to: “Each magnificent widget stands a towering 7 inches. These hefty widgets weigh in at an impressive 4 pounds—they are not the lightweight widgets you see elsewhere. Additionally, each striking widget is delivered in a striking candy apple red, the one widget color for which most savvy widget buyers clamor.”
Acme may be a great copywriter, but he is not doing himself any favors. All of the marketing verbiage may have a place at Acme’s site, but that place is not in a final product description.
At some point prior to sale, a description must be offered that simply and starkly defines exactly what a customer is buying without any superfluous information. A good product description, offered somewhere where the buyer must see it prior to confirming purchase will be honest and objective, helping to insure that the customer truly does know what they are buying.
This kind of information should not adversely impact sales but will reduce the number of chargebacks. Customers will not only know in advance what they are getting but will also know when they receive the product that they were told exactly what to expect. In the mind of a consumer who may still not be wholly pleased, the fact they know they were exposed to a clear rundown of the product may prevent them from seeking a chargeback.
Offer an Anti-Fraud Statement
One of the most common causes of online chargebacks is simple fraud. Crooks will seek to get something for nothing and will be willing to either allege product deficiencies in a chargeback request or to use stolen credit cards in order to make purchases—which will also result in chargebacks.
One cannot dissuade all criminals from their illicit pursuits. However, most nefarious sources of chargebacks will prefer targets that appear soft. By expressing a hardliner stance on fraud clearly before any sale is made, a merchant can convince potential thieves to look elsewhere.
All merchants should note their intolerance of fraudulent purchases and willingness to pursue all means necessary to see to it that those committing fraud are found out and punished. A solid anti-fraud statement placed upon a sales page can serve to dissuade some of the criminally-minded from trying to turn a fast buck.
Had John Acme provided a clear statement regarding his approach to fraud, he might have “scared away” a scammer whose efforts later produced a costly chargeback. Had he taken a little time to put a strongly worded anti-fraud statement on his widgets site, he could have communicated the seriousness with which he might pursue thieves and may have given at least one of them a cause to pause before trying to rip him off.
An anti-fraud statement also serves to bolster a merchant’s credibility with non-fraudulent consumers. Shoppers note that a site is serious about preventing fraud and may, therefore, feel more secure in making a purchase. A strong anti-fraud message not only conveys one’s willingness to take on would-be scam artists, but also the merchant’s overall concern with maintaining good business practices.
Obtain a Good Merchant Account
The reaction of your merchant account provider can be key in avoiding the hassles associated with chargebacks. Some processors are more reasonable than others both in terms of their outlook on chargebacks and the fees they charge when chargebacks occur. Different processors also have different levels of tolerance with respect to chargebacks. Before a merchant takes a single order for his or her online enterprise, he or she must first be completely confident in the merchant account provider and fully aware of its approach to chargebacks and expectations regarding merchant handling of chargebacks.
Too often, in the rush to get a business started, the question of which merchant account provider is reduced to “who can I get set up with the fastest for the least amount of money.” That seemingly efficient outlook can be devastating in the long run, particularly with respect to the issue of chargebacks.
The processor will be the one who actually takes money from a merchant when there is a chargeback. They are the ones capable of levying significant fees against a merchant. They are also the ones who may opt to discontinue a merchant account—the very lifeblood of an online business.
A great deal of care should be taken with respect to a merchant account provider. Optimally, a merchant should look to find a service that sees itself as a partner in creating a successful enterprise and not one who looks at chargebacks as an opportunity for additional profits. One should also avoid a processor who is unwilling to consider the likelihood that many chargebacks are not the fault of the merchant.
The cliché that “the customer is always right” should hold true in the case of merchant account providers. Remember, the merchant is the customer for these operations. The complaining consumer is not. One should make sure they align themselves with a processing operation that looks after its customers—online businesses—first and foremost.
Remember, however, that no company is likely to really actively side with a merchant in most cases. There is still a strong presumption in favor of consumers when complaints are levied. However, there is an increasing trend among online providers to offer services that seem to be more supportive of merchants who are facing chargeback situations.
Create a System for Handling Chargebacks
In many cases, chargebacks come as a shock to merchants who have not yet considered the problem in its entirety. Taken by surprise, these merchants often find it hard to take appropriate action. Before taking a single sale, every online merchant should first consider and create a system for handling chargebacks. By investing some time and consideration on the pre-sale, front end, one can minimize the adverse impacts of chargebacks considerably.
The characteristics of a merchant’s anti-chargeback system will undoubtedly vary based upon the individual merchant and the exact nature of his or her business. However, there are some components that should be present in any workable chargeback solution, including the tips and advice offered herein.
John Acme had never given the issues of chargebacks a second thought. Although a true widget expert and a relatively talented website operator, John had only heard of chargebacks in passing and guessed it was an issue that only impacted dishonest or unscrupulous merchants. Had he known more about the matter and invested adequate time and effort into building a legitimate anti-chargeback strategy, John May have been able to aver the two chargebacks that nearly decimated his small online venture.
Maintain Records Properly
Eventually, all merchants will face a chargeback. When they do, they will need to be able to access all of the information regarding the transaction in question. It is therefore essential to save all transaction records and to manage them in a way that makes recall of a specific sale convenient and easy.
Disputing a chargeback requires documentation. Additionally, a merchant is under time pressures to provide responses and documentation. Too often, an invalid chargeback goes unchallenged or is unsuccessfully resisted by a merchant who was simply unable to put his or her hands on the required data in a timely fashion.
Records maintenance may often seem like a poor investment. If you go a long period without experiencing a chargeback may feel as though the time spent recording and maintaining transaction logs is wasted. However, facing even one chargeback and the attendant hassles will make all of the effort worthwhile. When a merchant remembers the significant costs associated with chargebacks, the time and effort expended in records management will present itself as a relatively inexpensive form of insurance.
Those who don’t consider chargebacks, like our hypothetical John Acme, often fail to maintain all necessary records. Even if all records are saved somewhere, they are often not maintained in a manner that allows for great accessibility. Had John been able to find his sales slips, supporting documentation and related information, he may have been able to avoid one of the chargebacks he suffered.
Provide a Telephone Number
Merchants should always advise their merchant account provider to include the business telephone number on billing statements. The presence of a telephone number can often result in a consumer calling on the merchant to discuss their potential complaints instead of immediately requesting a chargeback.
Quality customer interaction is a great way to reduce the occurrences of chargebacks. This is especially true in cases of confused customers or those dissatisfied with a product. An opportunity for communication may allow a situation to be completely solved without involving the credit card issuer or merchant account provider. Many chargebacks are initiated by “trigger happy” consumers who could be led away from the action if an opportunity to talk to the merchant is readily available.
Those who fail to provide a contact number are encouraging consumers to take their complaints to their credit card companies immediately. The card issuers, in an effort to provide maximum protection for their customers, may very well recommend a chargeback in situations that really do not warrant a reaction of that magnitude. By creating opportunities for merchant-customer interaction, one decreases the frequency of chargebacks. Before a merchant takes a single order, he or she should make sure all necessary contact information will be provided to customers.
Scrutinize Sales
One of the easiest ways to reduce the risk of being victimized by chargebacks is to carefully scrutinize sales before accepting payment. A good scrutinization strategy can allow a merchant to avoid specific situations that may result in chargebacks altogether. There are a variety of factors at play with respect to sales scrutiny. A few, however, stand out as nearly mandatory portions of any successful plan.
Beware of Free Email Accounts
Free email accounts are used by thousands of legitimate consumers every day. However, they are also the favored routes for scammers and thieves. A free email address can be obtained in less than five minutes and does not require the submission of any accurate information. Free accounts can be quickly and easily created with fictitious names and information by virtually anyone. Many online thieves will create a seemingly legitimate free email address to match the stolen credit card they plan to use.
It may not be possible to completely reject any purchases made by those using unpaid email addresses. Some online vendors have implemented such systems, but they usually offer products that appeal to specific niches where a paid email address is de riguer.
There are some, however, who insist that taking orders from free email services guarantees disasters. One advisor has recounted a client’s horror story involving free email addresses. The merchant had been relatively successful even though he would only accept “paid” addresses. In an effort to generate more sales, however, he decided to experiment with abandoning the prohibition on free accounts. His initial sales numbers soared. So did the number of chargebacks he suffered. This established merchant soon found himself on the brink of completely losing his merchant account.
If one feels they must accept orders that are attached to free email addresses, the orders must be examined closely for any possible problems. The “@hotmail.com” may not mean fraud is on the horizon, but it does increase the likelihood that a transaction could be illegitimate significantly.
Beware of Some International Orders
The internet is a global phenomenon, and part of its attraction is the ability for merchants to reach a truly international audience. Unfortunately, it seems as though some parts of the globe are often the source of scams and rip-offs.
Nigerian “419” scams are one of the most well known internet rip-off ploys. Fraudulent emails prey upon the unsuspecting and ill informed. It is no surprise, when one considers the skilled and experienced scamming population of Nigeria that orders placed from the nation are often fraudulent.
Orders stemming form other developing nations are also more prone to be fraudulent than those from more affluent nations. Poverty and a lack of law enforcement make scamming a viable means of generating income in many areas. A savvy online merchant will note the originating nation of orders and will be particularly suspect of transactions stemming from lesser developed countries. Former Soviet Republics and the nation of Malaysia are also considered high-risk countries with respect to fraudulent online credit card purchases.
Of course, not every Nigerian is a thief. Nor is every American an honest buyer. Good and bad consumers exist in both nations. Nonetheless, the amazing percentage of transactions originating from nations like Nigeria that turn out to be fraudulent warrants a close investigation of every sale to the area. Many online merchants, in hopes of better self-defense, refuse to process any transaction stemming from such locales.
Beware of Unusual Orders
If a merchant sells something that appeals to only a limited office or is usually ordered in small quantities, they should be suspicious of any large orders that do not meet their usual experiences. Likewise, merchants should consider the popularity of their product in various regions in order to assess which orders must be closely examined. If a merchant sells sleds, for instance, he should be immediately suspicious of an order placed from Florida.
Not all odd orders will be that obvious, of course. However, every merchant will have a good idea of the usual quantities or their products that are purchased and other characteristics of a common sale. They can compare these tendencies to new orders in order to isolate those transactions that seem particularly odd or likely to be fraudulent.
The failure to examine unusual orders can often result in chargebacks that otherwise could have been avoided. Our John Acme, for instance, may sell widgets that are offered in lots of one dozen. In the course of several years of doing business, the largest order John Acme ever processed was for three dozen widgets. When John sees an order for twelve dozen widgets, he is able to recognize that the consumer probably meant to order one dozen, not a gross. A simple telephone call to the customer confirms the confusion. Had he shipped a full twelve dozen widgets to the consumer, he may have experienced a chargeback. By carefully scrutinizing unusual orders of any sort, a merchant is able to better avoid chargebacks.
Orders that consist of several quantities of the same item and the other types of orders mentioned above are not the only kinds of orders that warrant increased scrutiny. There are other things for which a merchant should be on the look out.
Purchases that request a rush delivery when one would usually not be necessary should raise a red flag on the part of merchants. This strategy is often used as a way for fraudulent buyers to get their hands on the goods before their criminal acts are discovered.
If a customer places an extremely large order for higher-priced products, this can also be a cause for concern. For instance, if a merchant operates a technology-related sales site and finds him- or herself looking at an order for several very expensive yet seemingly unrelated items, they should be concerned at the prospect of fraud.
This same rule holds true when one notices a rash of orders from a new customer in short proximity to one another. Generally, consumers do not behave in this fashion and the unusual order should be relatively noticeable. Many orders from the same individual over a short period of time are often a sign that fraud is afoot.
Another rationale for close scrutiny is when an order features one address for billing, but requests delivery to an alternate location. This can be a completely innocent request on the part of a buyer. Perhaps they are simply using a personal credit card for something that they would prefer to have delivered to their office. Maybe the consumer is purchasing the item(s) as a gift and wants them delivered to the intended recipient directly. These rationales are sensible and do occasionally occur. However, requesting shipping to an alternate address is also a technique used by those committing fraud. They may have enough cardholder information to provide the correct address, but they would prefer to have the order shipped elsewhere for pick up in order to get their hands on the illegal obtained materials.
Commonly, this involves using the address of a hotel. Delivery services will leave the package at the front desk, and the unscrupulous buyer will simply pick up the package there. Hotels often fail to get detailed information about those who pick up such packages, asking they provide nothing more than a signature on a check out form. The names and information often go unchecked, allowing someone who is not even staying at the hotel to use it as a staging area for their criminal scheme. These situations demand attention on the part of a merchant and make processing orders with two distinct addresses worrisome.
Follow-up on Scrutinized Orders
Simply noticing that an order may be suspect will do nothing to prevent a chargeback. In order for the observation to have any meaning, some action must be taken. All merchants should examine their sales for possible problems and then be willing to act upon those that seem to be of high risk.
Sometimes the action can be as simple as an email to the buyer. In other cases, a telephone call may be necessary. In very questionable situations, merchants have been known to request faxed copies of identification and other documentation before effectuating a sale.
The exact nature of the follow-up will depend upon the merchant and the exact suspicions at hand. What is important is that the information gleaned from close scrutiny of each sale results in proactive measures to reduce the likelihood of chargebacks. Considering the risks posed by chargebacks, that sort of aggressive behavior on the part of merchants is wholly necessary.
When it appears that a chargeback is likely, the merchant should usually not follow through with product delivery until adequate information can be obtained to process it safely. This may inconvenience a customer, but most buyers will be understanding of the situation. In fact, many may be pleasantly surprised that the merchant is so willing to take actions designed to protect customers.
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