Everything You Need to Know about Chargeback Prevention in Ecommerce
Ecommerce is the very business branch that suffers from chargebacks the most.
Explore how to reduce the chargeback rate on your ecommerce platform in this article.
Any ecommerce platform owner knows how important chargeback prevention is, but what exactly is it, and how to efficiently prevent all types of chargebacks? In this article, we will talk about ecommerce chargeback management, its peculiarities, as well as reliable chargeback protection methods for your online store.
What Are Ecommerce Chargebacks?
Ecommerce chargebacks are no different from regular chargebacks simply because chargebacks have the same nature in all industries. So, basically, a chargeback is the procedure of refunding a customer after a dispute. Of course, such a feature is pretty useful for customers since it protects them from fraud and various transaction mistakes. At the same time, disputes and chargebacks aren’t a good thing for ecommerce businesses since not only do they oblige to refund customers but also pay costly fees. Moreover, pretty often, businesses have to deal with chargeback fraud, meaning they lose a lot of money to cybercriminals. Thus, it goes without saying that all types of ecommerce chargebacks must be prevented. Luckily, chargeback prevention is easier and more affordable than most entrepreneurs think, but we will talk about that a little later.
How Do Ecommerce Chargebacks Work?
We have already mentioned above that a chargeback is the procedure of refunding a customer after a dispute, and since it is the final step of a dispute, it simply cannot have any sophisticated workflow. But to understand chargebacks, it’s important to understand what a payment dispute is and how it works.
First of all, a chargeback is not a dispute, and these two terms cannot be used interchangeably. Chargeback is a variant of dispute resolution, but before that, a lot of other interesting things happen, so let’s take a brief look at the workflow of an average payment dispute:
- Dispute initiation. A customer notices a suspicious (in their opinion) transaction and opens a payment dispute through their card issuer.
- Dispute notification. The card issuer reaches out to the merchant, provides the details that prove the illegitimacy of the transaction, and requests transaction reversal.
- Merchant investigation. The merchant investigates the case to determine the validity of the claim.
- Evidence submission. The merchant presents the evidence of the transaction's legitimacy to the card issuer.
- Card issuer review. The card issuer reviews the evidence provided by the merchant.
- Dispute resolution. In case the customer’s claim is found valid, the merchant refunds the customer and covers all the dispute fees (proceeds with a chargeback). If the claim is found false, the card issuer may reinstate the charge and require the customer to pay the disputed amount.
- Third-party intervention. In case the dispute cannot be resolved between the merchant and the card issuer, a payment processor intervenes to review the case and resolve the dispute.
The dispute procedure seems pretty simple at first time, but it is actually not as simple as it sounds. Moreover, an average payment dispute can last about 2-3 months, so, if possible, it’s more reasonable for both customers and merchants to solve any issues without opening a payment dispute.
Common Causes of Ecommerce Chargebacks
As we already know the only reason why an ecommerce chargeback happens is a dispute that resolves in a chargeback. But payment disputes themselves happen due to a wide variety of reasons, so let’s have a brief look at the most common causes of payment disputes that often resolve in chargebacks:
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Product delivery issues.
Late delivery, incorrect items in the parcel, or non-delivery make customers request a chargeback. Luckily for ecommerce platform owners, this problem can be easily solved by cooperating with reliable shipping companies only, updating their customers about their order status, and being easy to reach out in case of any issue.
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Unmet customer expectations.
In our opinion, product dissatisfaction is not a valid reason to open a dispute, yet still, a lot of customers do so if the product doesn’t meet their expectations. To prevent chargebacks due to this reason, make sure to provide your customers with clear info about your return and refund policies so that they will be able to easily return the goods that didn’t meet their expectations instead of issuing a payment dispute.
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Chargeback fraud.
Some customers issue payment disputes, making false claims about not receiving the item. This is pure chargeback fraud that can be prevented by means of using ecommerce chargeback management solutions.
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Friendly fraud.
Pretty often, customers issue payment disputes due to transaction confusion simply because they forget they made a certain transaction or someone else in their household used their card without letting them know. The problem of friendly fraud can also be solved by modern ecommerce chargeback prevention solutions.
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Billing errors.
Lastly, incorrect or duplicate charges that happen due to billing errors make customers believe they were scammed, which drives them to immediately open a payment dispute. To solve this problem, cooperate with reliable payment processors, make sure to be easy to reach out for your customers, and use chargeback protection systems that will help you refund customers in case of billing errors automatically without the entire dispute procedure.
The causes of payment disputes can be various, but they don’t change one simple truth — any dispute must be prevented from becoming a chargeback. So, make sure to take all the necessary precautions to minimize the number of chargebacks your ecommerce platform has.
Impact of Ecommerce Chargebacks on Businesses
The average ecommerce chargeback rate is 0.60%, which is considered pretty normal since the so-called “dangerous rate” that causes penalties is slightly higher — 0.9% for Visa and 1.5% for other payment networks. It seems like such a low rate is insignificant, and it won’t have any impact on your business. But it’s actually silly to believe that since even a few chargebacks cause pretty significant financial losses.
Moreover, on average, a chargeback ends up costing a business twice as much as the amount of the original transaction, which is especially painful for small ecommerce businesses. So, even a 0.60% chargeback rate has a pretty nasty impact on an ecommerce platform.
Among other unpleasant consequences of chargebacks for ecommerce platforms are the following:
- Increase transaction fees
- Penalties and fines
- Damaged reputation
- Potential legal action
- Increased workload
- Customer satisfaction rate reduction
- Potential business accounts closure
- Reduced profitability
As you can see, a high chargeback rate is not a good thing at all, and it causes a wide variety of problems for ecommerce businesses. So, we guess you already know that ecommerce chargeback prevention is of crucial importance for any business regardless of its size or type, and we will discuss it more in the following paragraph.
How to Prevent Ecommerce Chargebacks
Both valid and fraudulent chargebacks are not good for any ecommerce platform, but how to prevent them? Well, there are some pretty reliable tips for efficient chargeback management. So, let’s take a look at the best chargeback prevention tips for all kinds of online stores:
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Ecommerce chargeback prevention solutions.
Perhaps the most reliable way to protect your ecommerce platform against chargebacks is using a reliable chargeback prevention alert like Ethoca or Verifi (both available within Germius). These prevention solutions provide decent protection against fraud and reliably prevent disputes from becoming chargebacks. -
Clear product descriptions and accurate pictures.
Chargeback management becomes easier if you eliminate the mere possibilities of it. Clear product descriptions and high-quality photos will help your customers understand what product they are about to get. As a result, the number of chargebacks due to unmet customer expectations will be much lower. -
Transparent return and refund policies.
If, for some reason, your customers are dissatisfied with your product, you have to make sure you provide them with an opportunity to return goods as well as information about your return and refund policies. This way, they will be able to easily return the product and get a refund instead of opening a dispute.
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Easy to reach support service.
Being easy to reach out to is one of the most efficient chargeback prevention strategies. Make sure your ecommerce platform has a reliable support service so that your customers will reach out to you with any possible issues instead of going for a payment dispute right away. -
Secure payments.
Chargeback protection becomes less of a problem for any type of ecommerce platform if you use secure payments only since reliable payment processors usually quickly block users once they notice fraudulent activity. -
Order tracking.
Perhaps every ecommerce entrepreneur knows that order tracking is important, but some business owners do not realize that order updates and delivery tracking info are an essential part of any chargeback protection strategy.
Chargeback protection is pretty important for all kinds of businesses, and luckily, there are ways to reduce the chargeback rate and, therefore, protect your revenue and reputation.
Wrapping Up
Chargeback management is not an easy thing, yet nobody says that reliable chargeback protection isn’t possible. Today, ecommerce platforms have a wide variety of options for creating the very chargeback prevention strategy that will perfectly work for their business. So, why don’t you take matters into your own hands and protect your business from chargebacks now?
