Chargebacks are a significant hurdle, impacting your business’ revenue and reputation. Consumers claim that 67% of chargebacks are avoidable. But is it really that easy?
Understanding chargebacks, why they occur, and, most importantly, how to avoid them is critical for maintaining a healthy and prosperous business.
This guide offers valuable insights and strategies tailored for high-risk industries. Find answers to questions such as:
- What is a chargeback, and what impact does it have on a business?
- How many chargebacks are too many?
- How to avoid chargebacks in a high-risk industry?
Read on to become an expert and to meet your best ally in chargeback prevention.
What is a chargeback?
A chargeback allows customers to get a refund directly from their bank or credit card company, bypassing the store where they made the purchase. It’s essentially a financial safety net.
Chargebacks are meant to protect consumers from fraud or mistakes. As such, it’s important to use them responsibly and not just because someone changes their mind about a purchase.
Misusing them can lead to undesirable results for both the purchasing and selling parties.
Consumers may incur penalties or even lose their credit card privileges. On the other hand, businesses with too many chargebacks can land on a TMF or MATCH list, which makes it hard for them to process credit card payments.
Why do chargebacks happen?
Chargebacks are a form of consumer protection that lets customers get their money back in certain situations. If you operate in a high-risk industry, it’s crucial to learn how to avoid chargebacks and what reasons lead to them.1. Unauthorized transactions
This is especially common in high-risk industries where fraud rates are higher. If someone uses a customer’s card details without their permission, the customer can file a chargeback to reverse the transaction.2. Item not received
In industries where goods or services are sold online, customers might request a chargeback if they don’t receive what they paid for. This could be due to shipping issues, digital goods not being accessible, or services not being rendered.3. Not as described or defective products
If a product or service doesn’t match its description, or if it’s faulty, customers might seek a chargeback. This can happen if there’s a mismatch in the quality or specifications promised versus what is delivered.4. Duplicate charges
Errors in payment processing can lead to customers being charged multiple times for the same transaction. In high-risk sectors, where transaction amounts can be significant, this becomes a major concern.5. Service disputes
This is particularly relevant in service-oriented, high-risk industries. Customers might opt for a chargeback if services are rendered poorly or not as agreed upon. Effective customer service, clear communication, and reliable product or service delivery can reduce the likelihood of chargebacks. Remember, they affect immediate revenue through chargeback fees and impact your business’s reputation with payment processors.7 expert tips to avoid chargebacks:
Chargebacks can be a major challenge, especially in high-risk industries. But there are effective ways to reduce them. If you’re figuring out how to avoid chargebacks, follow these expert chargeback prevention tips:1. Provide clear service and product descriptions
Ensure your product or service descriptions are clear and accurate to set the right customer expectations. Include details like size, color, features, and any limitations. The more accurate the description, the less likely customers will feel misled and file a chargeback.2. Use recognizable billing descriptors
Customers often file chargebacks because they don’t recognize a charge on their statement. Ensure your billing descriptors clearly reflect your business name or the product sold to prevent misunderstandings.3. Implement strong customer authentication
Strong authentication verifies the customer’s identity, adding an extra layer of security. Use security measures like two-factor authentication for transactions. This reduces the risk of fraud, which is a common cause of chargebacks in high-risk industries.4. Have a clear and easy refund policy
Make your refund policy easily accessible and straightforward. If customers know they can return a product or cancel a service easily, they’re less likely to go straight to their bank for a chargeback.5. Provide excellent customer service
Respond quickly to customer inquiries and complaints. Be proactive in resolving issues and offer solutions that meet customer needs. A satisfied customer is less likely to file a chargeback.6. Keep detailed transaction records
Maintain thorough records of transactions, including communications with customers. This can be invaluable if you need to dispute a chargeback. Documentation like signed delivery receipts, email interactions, and service agreements can provide crucial evidence.7. Monitor for fraudulent activity
Lastly, but perhaps most importantly for high-risk businesses, stay vigilant for signs of fraud. An example would be multiple orders from the same customer using different cards. Implement tools that detect unusual transaction patterns such as this one, which can be indicators of fraud. Remember, chargeback prevention is key, and a proactive approach can save your business time and money.How PayFasto can help?
Beyond teaching you how to avoid chargebacks, PayFasto proactively assists you.
The first step in dealing with a chargeback is to inform your bank about the situation.
With PayFasto, you can efficiently gather and organize all the necessary information to present your case effectively to your banking institution. This includes transaction details, customer communications, and any other relevant data that can help in disputing the chargeback.
PayFasto helps you identify potential causes of chargebacks in your business and prevent chargeback.
This could be through:
- Improving transaction security with its high-risk payment gateway
- Enhancing customer service with international and recurring payment options
- Customizing the perfect payment solution for your specific business
