A hand drawing on a chalkboard - a $ with a counterclockwise arrow around it illustrating chargebacks

How eCommerce Can Minimize Chargebacks

Chargebacks are a headache that no eCommerce merchant wants to deal with. Chargebacks are costly - both in dollars and time. Here's what you can do about it.

Table of Contents

We can help
To learn more about minimizing payment and anti-fraud headaches for your brand, just reach out to us or schedule a demo. We are here to help.

While some luxury brands have made news by offering customers the opportunity to pay with crypto, most eCommerce merchants rely on credit card transactions. That mean merchants must deal with chargebacks. Chargebacks occur when a customer disputes a sales transaction and asks their credit card issuer to reverse the charge. These disputes rarely favor the merchant which is why it is so important to minimize chargebacks in the first place.

How Do Chargebacks Work?

A chargeback occurs when a customer disputes a credit card charge and wants to void the sales transaction. The customer asks their bank for a refund, and the funds go back into the customer’s credit card account. The bank then negotiates the dispute with the retailer and determines if the transaction was dealt with properly. If the bank determines the buyer was correct in their fraud charge, it will hit the retailer with a fee.

There are many reasons for chargebacks, and many disputes are indeed legitimate. While chargebacks can protect consumers from unauthorized transactions and fraud, they present a significant challenge for merchants. When not appropriately managed, chargebacks can threaten a business’s profitability and reputation.

Chargebacks Are on the Rise

Chargebacks disputes are one of the biggest headaches facing online merchants today, and they are becoming more frequent. In fact, 39% of eCommerce shoppers are disputing transactions more now than they did before the start of the pandemic. Approximately one-quarter of eCommerce shoppers disputed at least one charge in the last 12 months.

The Financial Costs of Chargebacks

Chargebacks cost eCommerce merchants a whopping $125 billion per year. For every $100 charged back, a merchant incurs $240 in expenses. Online stores can expect to pay anywhere from $25 to $100 per chargeback on top of the purchase amount. Factor in extra expenses like transaction fees and operational costs, and companies often lose more than twice the transaction amount for each chargeback. 

Customers typically have a minimum of 120 days to dispute a charge. Merchants, however, often have a maximum of 30-45 days to respond. If the merchant doesn’t respond, the chargeback is granted and the merchant assumes the fees and monetary loss. Depending on the complexity of the chargeback request, a claim investigation can take between 30 to 90 days.

What Is Friendly Fraud?

Chargebacks are also known as “friendly fraud,” even though there’s nothing friendly about them. Friendly fraud occurs when a customer requests a chargeback from their bank despite receiving the goods or services they ordered. As a result, the bank refunds the consumer, believing that actual fraud has occurred. Nearly 80% of merchants have seen an increase in friendly fraud over the past three years. According to the 2021 Global Fraud Report, friendly fraud is now the #1 online fraud attack.

How eCommerce Businesses Can Minimize Chargebacks

three wooden blocks - one with the @ symbol, one with an envelope and one with a phone receiver

Chargebacks regulations protect consumers from crooked merchants, so disputes generally lean heavily in the customers’ favor. Whether a chargeback results from friendly fraud, merchant error or an unscrupulous fraudster, the retailer almost always loses. 
In an effort to protect themselves, 77% of eCommerce merchants are practicing chargeback prevention strategies. Online businesses can nip chargeback disputes in the bud by enacting these practical best practices:

Follow PCI-compliant practices

All merchants that accept credit cards must abide by payment card industry (PCI) compliance standards that protect cardholder data. PCI compliance is particularly important for eCommerce sites, as web-based transactions tend to be more susceptible to fraud. Maintaining PCI compliance gives merchants better protection against fraudulent chargebacks.

Provide excellent customer service

43% of consumers find reaching customer support difficult and frustrating. Many customers would rather initiate a chargeback than deal with slow or unresponsive customer support. Offering prompt and responsive (preferably 24/7) support will increase customer happiness and improve retention. When customers know the status of their inquiries, they are less likely to file a chargeback.

Offer refunds

Giving refunds is the best way an online merchant can avoid a chargeback dispute. If a customer is unhappy with a product, they will get their money back by any means possible. By offering timely and generous refunds, eCommerce brands can strengthen customer trust and avoid the chance of a chargeback. Plus, return management can be cheaper and less hassle than dealing with chargebacks.

Have simple return/refund policies

Return and refund policies should be uncomplicated, easy to understand and not open to interpretation. Refund policies should also be easy to find and displayed wherever a buyer would expect to find them. Placing a clickable button on the checkout page confirming the customer has read return policies is also a good practice. Being transparent about expectations on returns and refunds can alleviate customer confusion and mitigate chargebacks. 

Confirm orders before and after the sale

eCommerce brands can protect themselves by emailing an active order confirmation requesting a customer’s electronic signature before finalizing the purchase. Doing so will provide evidence if a customer later claims they received something different than what they ordered. Automatically email a confirmation order to the customer once they place an order as well. An order confirmation will provide merchants with a traceable record of the purchase. 

Provide relevant product descriptions

Chargebacks can occur when product or service descriptions are inaccurate or don’t match the product received. Brands need to make sure items are exactly as described on a product page. The more details, the better. If a product doesn’t live up to its billing, a customer could request a chargeback. Removing items that are no longer available from a website is also recommended.

The Importance of Fraud Protection

Chargebacks fraud is just one of the many types of fraud facing online merchants. While the above tips can help fend off chargebacks, online merchants must take deeper measures to protect themselves against fraud. One of the best fraud protection strategies is to partner with an eCommerce provider that offers robust fraud management systems. Scalefast’s real-time multi-stage anti-fraud strategies help eCommerce businesses of all sizes feel secure and protected. 

Want to learn more? Schedule a demo or contact one of our eCommerce experts today.

Don't forget to share this post!

Keep Reading