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.
Recommended reading
- What’s an “Acceptable” Chargeback Rate? Why Does it Matter?
- The Best Chargeback Management Software for 2024
- 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:
Set Up Chargeback Alerts
Chargeback alerts are crucial for your first defense. They let you know right away before a chargeback starts. This can help you act fast, intercepting disputes and refunding your customer to stop the chargeback right there. This not only helps maintain customer trusting, but also cuts down on the work and costs that come with chargebacks.
Use Network Inquiries
Network inquiries, like Order Insight and Consumer Clarity, offer another way to get ahead of problems. They let you communicate and provide documentation straight to the bank. You can sort out problems before they turn into chargebacks. This is really useful when there's just a mixup or a small mistake, because it lets you clear things up fast.
Make the Most of Real-Time Dispute Resolution
Rapid Dispute Resolution (RDR) is a newer way to handle chargebacks. RDR lets you work directly and in real-time with banks. This means you can solve problems fast, sometimes even as the transaction is happening. By dealing with issues quickly, RDR can cut down on the number of chargebacks you get, which helps keep your money safe and keeps your good reputation.
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.
Important!
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.
You can’t handle chargebacks until You know the source. Trust the experts who can take chargebacks off your plate.
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:
Develop a Customized Strategy
Every business is unique, so your approach to preventing fraud should be tailored to your specific needs. Consider factors like the type of products or services you offer, your sales channels, and your customer base. Understanding these aspects of your business will help you determine the right combination of tools and approaches to effectively combat fraud.
Use Fraud Filters
Fraud filters are a must-have in your prevention toolkit. They work by checking transactions for signs of fraud. This can include things like verifying the billing address, checking if the shipping and billing addresses match, or looking for unusual purchasing patterns. You can set rules based on your business's typical transactions, which helps to flag anything out of the ordinary. This way, you catch potential fraud before it turns into a chargeback.
Implement Other Fraud Detection Solutions
In addition to fraud filters, there are other advanced solutions you can use. These might include:
- Device fingerprinting: This tracks the unique characteristics of the devices used in transactions, helping to identify if a fraudster is trying to use stolen card information.
- Geolocation services: These check where transactions are coming from and can flag transactions from locations known for high fraud rates.
- Behavioral analysis: This looks at how users interact with your website. For example, if someone is typing unusually fast or clicking around too quickly, it might be a sign of bot activity.
- Machine learning algorithms: These can learn from your transaction history to get smarter at spotting potential fraud over time.
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:
Identify Procedural Errors
Start by reviewing your entire sales and fulfillment process. Look for areas in which mistakes are happening. This could be anything from billing errors and shipping issues to problems with product descriptions. Analyze customer complaints and feedback, as these can give you valuable insights into where things might be going wrong.
Outline Necessary Changes
Once you've pinpointed the errors, it’s time to figure out what needs to change. This could involve updating your website to provide clearer information, improving your customer service response times, or refining your billing and shipping processes. The goal is to make your operations as error-free as possible.
Implement Targeted Prevention Strategies
With the necessary changes identified, you need to implement strategies that specifically target these issues. This might mean training your staff on new procedures, updating your technology systems, or improving your communication with customers.
Use ERT (Error, Risk & Threat) Notifications
Chargebacks911 providesto our clients. These notifications are a valuable tool as they help you spot and eliminate recurring problems. They alert you to potential issues in your processes, allowing you to take quick and corrective action. This proactive approach can significantly reduce the likelihood of merchant error chargebacks.
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.
Important!
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.
