Surviving the season: What are chargebacks in retail and how do you navigate them?
Chargebacks cost retailers almost 0.5% of their total annual revenue. When you also consider the time investment required for handling disputes, chargebacks’ overall impact on profitability and operational efficiency becomes even more consequential.
Don’t go into the biggest retail season of the year with the shadow of chargebacks looming over you. Instead, read on to learn the practical ways to both prevent chargebacks and effectively navigate disputes.
Understanding retail chargebacks
Retail chargebacks are financial reversals initiated by customers through their banks or credit card issuers. They function to dispute a transaction and reclaim funds from a merchant. Especially as the busy holiday season rolls around, retailers often see an uptick in these claims.
As the holiday season approaches, the reasons why one of your customers may initiate a retail chargeback include:
- Fraudulent transactions: Unauthorized use of a customer's payment information by third parties.
- Merchant errors: Mistakes such as incorrect billing amounts, duplicate charges, or processing errors.
- Product or service issues: Goods not delivered, delivered late, or significantly not as described.
- Technical problems: Glitches during the transaction process, leading to erroneous charges.
- Unrecognized charges: Customers not recognizing the merchant's name on their statement, leading them to believe the charge is unauthorized.
Is there a difference between a retail chargeback and a refund?
While both chargebacks and refunds result in the return of funds to the customer, they differ in initiation and process:
- Refund: Initiated by the merchant at the customer's request. It's a mutual agreement where the merchant processes the return of funds due to a product return, cancellation, or service issue.
- Chargeback: Initiated by the customer through their bank or card issuer, often when the merchant is unresponsive or unwilling to issue a refund. Chargebacks can lead to additional fees for the merchant and may impact their standing with payment processors.
Preventing chargeback in retail
The majority of chargebacks are due to fraudulent transactions, merchant errors, and unmet expectations. There are practical chargeback prevention steps that you can take to mitigate these risks, including:
Providing accurate and detailed product descriptions: Ensure all product listings include comprehensive information. Depending on your product or service, include specifications, dimensions, materials, and high-quality images. This extends to ensuring accurate shipping information.
Using clear and recognizable merchant descriptors: Make sure the business name appearing on customer billing statements matches the name they associate with your store or website. Unrecognizable descriptors commonly lead customers to believe a charge is unauthorized, prompting them to initiate a chargeback.
Implementing advanced fraud detection software: Deploy fraud prevention tools that utilize artificial intelligence (AI) and machine learning (ML) to identify and block suspicious transactions. Verification features to look for include address verification systems (AVS), card verification codes (CVV).
Keeping your customer service standards high: Aim to resolve issues by making your customer service efforts easily accessible and high quality, rather than leaving the customer feeling as though they need to take the matter into their own hands by initiating a chargeback.
Maintaining detailed transaction records: Keep documentation of all transactions across the product’s lifecycle, including receipts, order confirmations, shipping details, and customer communications. In the event of a chargeback dispute, these records will help you to validate the transaction and refute invalid claims.
Clearly stating return and refund policies: Display your return and refund policies prominently on your website, at the point of sale, and on receipts. Use clear, concise language to avoid misunderstandings. When customers are fully informed about the terms of purchase, they are less likely to file chargebacks due to confusion over policies.
Additionally, you can save time and money by keeping tabs on chargeback patterns. Particularly through the use of next-generation payments software, you can seamlessly identify why chargebacks are occurring and strategize accordingly.
Remember, though, that some things are out of your control. Despite implementing best practices, you may still encounter friendly fraud, referring to when customers dispute legitimate transactions. The reasons for friendly fraud can range from forgetfulness about the purchase to intentional attempts to obtain goods or services without payment.
Other non-controllables include third-party processing errors, external fraudulent activity, and simple customer misunderstandings. While it's not feasible to completely eliminate these risks, being proactive about recognizing and implementing mitigation strategies can effectively lead to fewer chargebacks and lessen their impact on your business.
How to manage chargeback disputes effectively
Beyond adopting the above best practices that function to prevent chargebacks, there are also steps you can take to effectively manage chargeback disputes. Here’s what you need to know about contesting chargeback transactions.
How long do merchants have to dispute chargebacks?
Merchants typically have a limited time frame to dispute a chargeback, which varies depending on the card network and payment processor involved. Generally, this period ranges from 7 to 30 days from the date the chargeback was received — the sooner you can make the dispute, the better.
For disputes involving Visa, Mastercard, and Discover, you must submit all necessary documents within 14 days of the dispute initiation date.
For American Express disputes, you must submit the required documentation within 10 days of the dispute date.
Are merchants liable for chargebacks?
Yes, merchants are generally liable for chargebacks. When a chargeback is initiated, the disputed amount is withdrawn from the merchant's account and held until the dispute is resolved.
The merchant not only risks losing the sale revenue but may also incur additional fees associated with the chargeback process. High chargeback ratios can lead to increased processing fees or even termination of the merchant's account by the payment processor or acquiring bank.
How can merchants win chargebacks?
As a first measure, merchants should actively implement the preemptive measures we covered above — providing accurate product details, using clear merchant descriptions, implementing fraud detection software, and so on. Merchants can then extend their chances of winning chargeback claims by submitting a timely and well-documented response that refutes the customer's claim. This involves:
- Gathering evidence: Provide clear documentation on all accessible and relevant factors, such as transaction receipts, delivery confirmations, tracking numbers, customer communications, and any proof that the goods or services were delivered as agreed.
- Addressing the reason code: Tailor your response to specifically counter the chargeback reason code provided, ensuring that all points of dispute are sufficiently covered.
- Following submission guidelines: Closely adhere to the format and procedures outlined by the payment processor or card network.
- Maintaining professionalism: Present information in a clear, concise, and factual manner without emotional language or accusations.
Get the support you need with Sekure Payment Experts
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