sherkin

(Read part 1 of 2 here.)

Unlike a refund, in which the merchant initiates the action and have control over it, the chargeback is an action initiated by the customer or by the bank. The result seems to be identical – the money is returned to the customer but, in fact, the chargeback has much more severe risks and consequences.

Credit card companies and processing companies supervise the merchants’ chargeback levels. Every chargeback is recorded in the merchant’s account and accumulates negative credit points which reflect the company’s ability to deal with credit card fraud, as well as the quality of the provided goods and services.

Merchants with unusually high negative credit scores (over 1% or 2% of transactions, depending on the country) may be fined and, in extreme cases, even lose their processing license.
Recent studies show that the amount of internet fraud has doubled this year, and that 50% of chargebacks are made due to credit card and payment method fraud (reason number 1 here) and the other 50% due to all the other reasons (2-5).

So what is to be done about it? Here are some tips that have proven to be efficient in avoiding chargebacks:

• Product details – let’s start with a really small tip: make sure that the product’s descriptor on the credit card statement is identical to the actual name of the product or the store. Note that if the buyer fails to easily connect between this text and the product they have purchased, there is a significant chance that they will initiate a chargeback. You must check that you aren’t transmitting the same text for every purchase and that the text represents the product as clearly as possible, so as to make it as easy as possible for the buyer to link the charge with the purchase.
• Use of anti-fraud systems –  these spot suspicious transactions in advance with a fraud identification system. The aim is to identify suspicious transactions such as ones made by lost or stolen payment methods, or transactions that are made in one country with a credit card that was issued in another. There is a wide range of products and companies that specialize in spotting suspicious transactions based on the parameters gathered at the time of the purchase. These solutions have different costs according to the specific models, and of course, there is also a need to employ a transaction checking and approval staff. Small or medium sized business may find it helpful to link up to outside merchant systems such as Plimus, which take it upon themselves to carry out all fraud checks as part of the processing service.
• Product and service – matching the buyer’s expectations is crucial! Verify that your promises about the product, the service, the charge and the delivery aren’t different from reality. Make sure that the customer always knows how to contact you with any issue and that you respond to their queries. See to it that the customer knows when he will be charged and the amount of the charge (especially if the product in question is a subscription). When you don’t specify contact details on the site or on the receipt, you don’t leave the customer any choice but to turn to the credit company instead.
• Refund policy – make sure that you have a clear and flexible refund policy that is to the advantage of the customer. Advertise the policy and act accordingly. Remember that a dissatisfied customer that is denied a refund can easily get their money back by way of a chargeback – and if this happens you will suffer more damage.

In short, be realistic in your pre-purchase promises, professional in its execution, and service oriented in its aftermath. By adopting these practices your chargeback problem should remain negligible and insignificant.

Hanan Sherkin

Risk & Compliance Officer