Chargeback claims are a fact of life in e-retail, but that does not mean you should consider them as inevitable costs of doing business.
Designed for consumer protection, chargebacks can severely harm your business. And when you are expanding to new geographical markets, the increased complexity of your operation will increase the risks.
Luckily, there are plenty of proactive measures you can take to prevent chargebacks from being filed in the first place. And when you do get them, the right chargeback management system will help you successfully dispute unjustified claims.
Let's take a look at what you can do to minimize the impact of chargebacks on your bottom line.
The hidden costs of chargebacks
The true costs of chargebacks go well beyond chargeback fees and the loss of merchandise. When a customer disputes a charge, you also incur multiple indirect costs.
For example, the shipping fees will be lost to you, and will add to the total amount. Whether the claim is justified or not, you will also be spending time and effort to deal with the dispute, adding to your administrative overhead.
If your chargeback-to-transaction ratio exceeds a certain threshold, usually 1%, the card associations will flag your business as "high risk" and increase their per-chargeback fees. They may also apply additional charges, such as non-compliance fees or expensive periodic reviews.
Frustratingly, these thresholds and fees still apply even if you represent and win every chargeback dispute. In other words, an ounce of prevention is worth a pound of cure.
How to keep chargebacks to a minimum
Some best practices for preventing chargebacks are easy to implement. One low-hanging fruit is to make sure that the merchant descriptor (the name that appears on the buyer's bank statement) is easily recognizable. Some payment service providers support so-called dynamic merchant descriptors, which allow you to provide additional information to the buyer to further prevent misunderstandings.
It is also important to clearly communicate rates and charges, shipment and delivery dates, to make regular returns easy for the customer, and to provide efficient customer service in the local language.
All of this becomes a little more difficult when you expand internationally, but chargeback prevention is even more important when you are venturing outside your home market. Not only do some countries have much higher chargeback rates than others, but chargeback reversals are also more difficult to win in certain markets.
One thing you can do is to reduce your dependency on credit cards, offering your buyers alternative payment methods instead. Many local payment methods have much lower risks of chargebacks, and payment to the merchant may even be guaranteed.
When you enter new markets, it is also important to team up with a payment service provider with solid experience in these markets. For example, not all PSPs offer a feature as seemingly simple as the ability to cancel transactions for every payment method in every market.
Effectively disputing chargebacks
Proper prevention will spare you a lot of trouble, but any e-retailer will inevitably receive some chargeback claims. Whenever you receive a claim, you have two choices: accept it or dispute it.
If the claim stems from actual fraud or an honest error on your part, you obviously accept it and move on.
If you do not think the claim is justified, on the other hand, then you should dispute it. Yes, it will cost you some time and effort, but winning disputes will not only help you recover revenue. It will also teach fraudsters that you are not an easy target, establish your reputation as a serious merchant with banks, and maybe, just maybe, contribute to fairer chargeback rules for merchants in the future.
In order to win a representment (dispute), meeting the issuer's deadlines and providing solid documentation to support your case is key. A robust chargeback management system will take a lot of pain out of the process, especially for merchants with operations in multiple markets.
Worldline facilitates chargeback management for all payment methods we support. Our self-service portal makes it very easy to represent your case by uploading documentation and adding textual explanations. For international merchants, we can be your single point of contact and handle any differences in dispute processes between our global acquiring partners.
To learn more about best practices for expanding e-retail businesses internationally, register to our webinar taking place on November 13: