Merchants can do everything right in their ecommerce business and still run face first into one of the biggest drains on their bottom line and reputation: chargebacks.
In addition to how frustrating they can be, chargebacks are expensive: For every dollar in chargebacks, merchants lose $2.50 in time, fees, physical goods, and shipping costs. Chargebacks can also threaten a merchant’s relationship with payment processors if their chargeback rate is too high. Simply put, too many chargebacks can cripple an ecommerce business.
That’s why merchants need a chargeback reversals strategy that will help them secure more of their hard-earned revenue. What should this strategy contain? A good start is to look at merchant best practices for winning chargeback disputes.
7 Ways Merchants Win Chargeback Disputes
Here are seven ways ecommerce merchants can increase their chances of winning chargeback reversals:
These tips will not only help increase the chances of reversing chargebacks, they can also help merchants reduce the factors that lead to unnecessary chargebacks. For the first tip, let’s start with the basics.
1. Learn How Chargebacks Work
Not every merchant understands chargebacks and the impact they can have on their business. But experienced fraudsters know everything about chargebacks – they are practically PhD’s in the subject. Merchants need to be equally aware and informed, starting with the basics:
What Are Chargebacks?
Chargebacks are the fees merchants pay when a transaction is reversed by a payment processor. Chargebacks usually result from an authorization issue (this is where card not present (CNP) and friendly fraud takes place), or a settlement issue – due to a processing problem or a valid customer-related dispute.
All chargebacks, regardless of their origin, impact a merchant’s chargeback rate. Payment processors typically set a 1% threshold for that rate. Any time a merchant exceeds the threshold, they are placed in a processor-specific management program with consequences ranging from high fees to being classified as a “high risk” merchant.
How Does the Chargeback Process Work?
Understanding the chargeback process can help merchants protect themselves from chargebacks and offer insight into winning chargeback reversals.
When a cardholder disputes a transaction, the process involves three steps:
- The merchant is notified of a pending chargeback and given a set timeframe to respond, depending on the payment processor.
- Merchants gather as much evidence as they can to prove the transaction was valid and submit it to the payment processor.
- The payment processor determines if the merchant is subject to a chargeback or the customer dispute is denied.
2. Pay Attention to Reason Codes
Every chargeback has an associated reason code that represents what the customer reported when filing the dispute. These codes help merchants understand why the chargeback was filed and what compelling evidence is required for a successful chargeback reversal.
Reason codes are also helpful when merchants compile data about their chargebacks. They can identify patterns like:
- Which transactions have the potential to affect their revenue
- Which codes their product or service line tends to trigger most frequently
- Which chargebacks are happening more regularly
- When chargebacks typically take place the most
Identifying these patterns assists merchants in preventing and defending against future chargebacks.
3. Know Which “Compelling Evidence” Is Required
The second step in the chargeback process is when merchants submit “compelling evidence” – to prove the validity of the transaction in question.
Without the right documentation, merchants find themselves fighting an uphill battle. The majority of this evidence comes from the merchant’s business records, such as sales receipts, order forms, and tracking numbers, but there is a host of other information that merchants should maintain and organize as a precaution. It’s important to note that compelling evidence can vary by industry.
Let’s take a look at the documentation and evidence that can help merchants win chargeback reversals:
When Selling Physical Goods
The most important piece of evidence a merchant needs for a chargeback relating to physical goods is proof of delivery. It’s even more compelling when the customer has signed for the delivery. Other compelling evidence includes:
- Correspondence between the customer and the merchant’s customer service department
- Screenshots of a customer’s public social media account that shows the disputed goods being used
- AVS and CVV match from the customer’s credit card
Not sure about AVS? Read Inside Ecommerce: Guide to AVS Mismatch
When Selling Digital Products
Proving that a digital product or subscription transaction is valid can be more challenging because there are so many variables involved. The most important data to maintain when preventing chargeback risks for virtual items is the customer’s IP address. This also helps to track down criminals in the event the purchase was made fraudulently. Here is more evidence that can be used to prove the validity of a digital transaction:
- AVS & CVV match
- GEO location
- Saved email invoices
- Saved transcripts/screenshots of all customer service communications
- Proof the customer logged in, downloaded, viewed, and used a digital order (using IP address)
- Evidence the customer accepted the merchant’s service, return, and refund policies
- Documentation showing the customer was notified about any upcoming recurring purchases
When Selling Travel or Other Services
Travel industry chargebacks and chargebacks for other similar services can be difficult to combat, but it’s not impossible. Here is what online travel merchants should track and submit as compelling evidence for chargeback reversals:
- AVS & CVV match
- Copies of tickets and check-in confirmations
- Proof of travel through public social media accounts
- The terms and conditions the customer agreed to at the time of purchase
4. Respond Within Required Timeframes
Payment processors give customers considerable time to file a dispute, often up to 120 days in the U.S. and even longer in other parts of the world like the United Kingdom, Asia, and Europe. Merchants have a much shorter window to respond, and those response timeframes vary by payment platform:
- VISA gives merchants 30 days to respond
- PayPal only allows merchants 10 days to respond
- MasterCard gives merchants 45 days to respond
- American Express gives merchants 20 days to respond
- Discover gives merchants 20 days to respond
In the past, when merchants failed to respond promptly, credit card issuers would simply assume the merchant accepted the chargeback. But with the latest Visa Claims Resolution initiative, merchants may now face additional fines if they don’t submit a formal response to Visa either accepting or denying the charge.
5. Look for Behavior Patterns
People naturally follow regular behavior patterns. That’s how merchants learn about their customers and cater offers to them. At the same time, customers who consistently file chargebacks may, in fact, be fraudsters.
Pay attention to patterns such as the same customer filing multiple chargebacks and their success rate. If merchants can find evidence these customers habitually file chargebacks — and lose in representment — this can bolster the case for fraudulent chargebacks. There may be a specific address associated with multiple chargebacks, or even a time of year. Not only can this help merchants detect potential fraud, the data gathered may also be useful to submit to the payment processor as evidence.
This type of tracking in partnership with a fraud protection solution can help merchants prevent fraudulent chargebacks instead of resorting to ineffective measures such as mass declining of transactions. When merchants default to declining transactions as a preventative measure, they risk increasing the number of false declines, which can be even more detrimental to their business. False declines are a leading reason why customers opt not to do business with a merchant again.
6. Write Compelling Rebuttal Letters
While the evidence a merchant submits is intended to support their case, a carefully constructed rebuttal letter offers the opportunity to succinctly summarize the key facts that can help them win chargeback reversals.
Here are some tips for constructing a compelling rebuttal letter:
Keep It Short
The letter itself doesn’t need to be longer than one page. Sentences should be clear and concise.
Keep It Objective
No matter how frustrated a merchant is with a customer or the situation, they need to stick with the facts and stay focused on the goal – winning the chargeback reversal.
Make It Specific
Customize the rebuttal letter to each dispute and focus on the evidence being submitted. Make sure to include referential details like chargeback reason code and the amount being contested.
7. Invest in Customer Service
The relationship between merchant and customer can significantly impact how a customer acts when something goes wrong. A portion of chargebacks are valid, caused by technology issues or a legitimate problem with the product or service. Some customers genuinely want to do the right thing, but a frustrating return policy or poor customer service will turn them towards the easier option: filing a chargeback.
These chargebacks can often be prevented by focusing on customer service. Whether it’s implementing chatbots to quickly answer customers’ questions, sending pre-delivery confirmation emails, or including pre-paid shipping labels for any potential returns, merchants can do quite a bit to improve the odds that a disgruntled customer will come to them instead of filing a chargeback with their credit card company.
To combat chargebacks, merchants need to have an in depth understanding of their customers, how they think about ecommerce, how they behave, and what they want from their online shopping experience.
Merchants also benefit from knowing where customers see the future of ecommerce, so they can customize the online shopping experience to anticipate what customers need now and in the future. ClearSale recently published a Global Ecommerce Consumer Behavior Analysis that examines customer behaviors and opinions for 2021 and beyond. This data-rich resource is invaluable for merchants striving to optimize their ecommerce sites and succeed in winning chargeback reversals.