Top 5 Reasons Why Your Customers File Chargebacks
Chargebacks are not a new phenomenon. In fact, they have been around since the early ’70s and are common events that many industries have to deal with. That said, it is only recently that e-commerce has grown exponentially, contributing to a steep increase in chargebacks. The rules governing chargebacks may vary depending on your business’s location, but, generally speaking, there are five types of chargebacks that are initiated by your customers. Some may be valid and others may not, but it is important to study them before determining the appropriate course of action.
Chargebacks can be expensive.
You must know what you are dealing with, why it’s happening, and how you can prevent it from happening in the future.
Reasons for filing chargebacks
Fraudulent or Unrecognized Charges:
These are the most common type of transactions and are often viewed as a customer’s protection mechanism. This occurs when your marketing efforts fail to reach the targeted audience desired and you end up delivering products that fail to meet their expectations, be it poor quality, wrong quantity, or product. This may also happen when your products are priced higher than the market.
Chargeback Reason Codes 101:
Reason Codes 101 represents an important first step in preventing chargebacks, by enabling you to identify the most common reasons for filing.
In general, there are two types of Reason Codes:
1. Processing Errors
Examples of this type are credit not posted, duplicate postings, and service or product not delivered. These are rare but possible processing errors, especially with the advent of mobile or e-commerce technologies. Check your processing records for accuracy before you submit a dispute to avoid unnecessary chargebacks from occurring.
2. Substantial Failure
This refers to the most common type of chargeback. The following are examples of these:
- You failed to honor a promotion or offer consumers previously accepted,
- You billed the wrong party, charged the wrong amount, or processed it without authorization.
Chargebacks resulting from these two reasons account for 40% and 60% of all chargebacks respectively.
Why May Your Customers File Chargebacks Against You?
The following 5 reasons illustrate how some businesses fail to meet consumer expectations, hereby resulting in chargeback losses:
1. Non-Secure Transactions:
As with most electronic transactions today, a “secure” website is a must-have when marketing and selling products online. But what makes a site secure? A website is considered “secure” if it uses up-to-date encryption technology, one-time billing tokens, or encrypted credit card transaction information.
Using web standards like Secure Sockets Layer (SSL) 2.0/3.0 and 128 bit encryption in order to encrypt financial and personal information is the bare minimum if you want to stand a chance of winning against chargeback fraudsters. Authorities are also cracking down on fraudulent merchants who are not following up with their efforts in this field.
If your website fails to meet these standards or is using technologies that are susceptible to data breaches, it’s only a matter of time before your customers begin to feel uneasy and start filing chargebacks.
2. Delivery Issues:
Delivery issues can be problematic if you are selling high-risk or low-quality products, like pharmaceuticals and food products. Your customers are more likely to complain about their quality, especially when they arrive late or when there is a shortage of products. It is best to address these concerns by implementing a high-quality tracking system that allows your customers to track their order status in real-time and ensure it arrives on time as promised.
In the case of Internet sales, one should provide clear shipping information and other details such as tracking numbers to protect themselves from fraudsters who may try to misuse the product. This is especially important if you are selling high-cost items, like jewelry or automobiles.
3. Order Processing Issues:
If a customer views an online order as ‘fraudulent’ or untimely and unauthorized charges are posted to their account, they may file a chargeback against your business for any of these reasons:
- You sent them the wrong item.
- You charged their credit card account without authorization.
To prevent these issues from occurring, you need to ensure all information in your system is correct and accurate at all times. Before charging a customer’s credit card, make sure they have provided the necessary authorization. If they do not respond to your requests in this respect, you can prevent chargebacks by using “holds” on their transactions.
4. Customer Request:
This reason is closely related to the first one we discussed above, with a few subtle differences. A customer may use the chargeback process if they dispute a merchant’s claim that they did not deliver as promised. A simple solution to prevent this is rather straightforward. If you have not already done so, establish an effective customer service policy by which your representatives can politely and effectively engage in discussions with customers who are filing a payment dispute or chargeback.
5. Lack of Knowledge:
Another more subtle reason why consumers file chargebacks against merchants involves the lack of knowledge of chargeback regulations. If a merchant does not clearly explain their return and refund policies on the website, for example, this could cause confusion among consumers who do not know if they qualify to file a dispute or charge back against you.
This is an important point to remember because many businesses believe that as long as they have a transaction or refund policy posted on their website, they are covered. They fail to consider that if the customer has not read and acknowledged these policies, or does not understand them, they may proceed with filing a chargeback for reasons related to this misunderstanding. In many cases, all it takes is a simple phone call to prevent such situations from occurring in the first place.
In conclusion, chargebacks are a necessary part of the online payment process. If merchants factor in the above reasons why consumers file chargebacks against them and take action accordingly, they can protect themselves from this risk beforehand.
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