Many startups have nightmares about chargebacks: when a customer disputes a charge on their credit card, usually due to fraud concerns. The good news is that although chargebacks can be annoying, they are usually a very small percentage total transaction volume—0.015%-0.025% of total credit and debit transaction volume is charged back. Here are some useful tips for dealing with chargebacks:
Since chargebacks occur due to customers’ fraud concerns, the first step to avoiding them is to be completely transparent with charges. Make sure to outline plainly and in clear language how much/how often a customer will be charged. Having a customer service line that is easily available will also reduce risk since the customer can call you before calling their credit card companies to dispute.
Sometimes, chargebacks are a simple misunderstanding when customers don’t recognize charges on their statements. This was the case for customers of 37signals, a Chicago based SaaS company. 37signals reduced their chargebacks by 30% through a clever strategy: they changed the way charges appeared on their customers’ credit cards. Instead of saying “Backpack” or “37Signals” on the customers’ statements, they changed it to “37signals-charge.com 800.xxx.xxxx IL” While staying within the credit card processor’s rules for how a charge can appear, 37Signals was able to direct their customers to a website and phone number where charges were clearly spelled out. This decreased their chargebacks significantly since customers were now able to easily research their charges online. Sometimes, understanding why your customers might dispute charges will help in crafting an innovative strategy to combat chargebacks.
Do the Research
A rough economy has pushed shoppers to dispute charges even after receiving merchandise. This practice, called “friendly fraud” increases in times of recession and now accounts for more than a third of total merchant fraud losses. Make sure to study chargebacks for signs of friendly fraud such as a higher than usual ticket size, or documentation from the customer showing that merchandise was received and returned with a lack of evidence from customer service confirming this. If you’re suspicious of friendly fraud, pick up the phone and confront your customer (politely). According to experts, most of the time, they will “cave” under pressure.
Have a Strategy
Since chargebacks are so rare, many businesses are unprepared when they are faced with the prospect of dealing with them. If your business wants to fight a chargeback, there is paperwork to be filed and proof to be found that that the customer received or used the product. Having a process in place for how to go about dealing with a chargeback can save your business time and money. Figure out the process, write it down, and assign it to one of your lower-cost employees.
Bio: TransFS.com is the comparison shopping site for credit card processors. Just like getting multiple quotes for airfare using Expedia, TransFS lets business owners compare top quality processors on an apples-to-apples basis and makes sure they get the best deal by not having any cancellation or hidden fees, and only interchange plus pricing.Subscribe to the Podcast