At Paymentsmith, we do our best to help our payment processing customers be knowledgeable when it comes to friendly-fraud. Which is why today, we are here to inform and equip you as a business owner on how to win a chargeback in order to save yourself money and headaches.
In the financial industry, you will often hear the term “chargebacks.” It’s one of the top-five pain points for most businesses, because it feels like you’re basically just handing your money out for free. That’s why often times, chargebacks are referred to as ‘friendly-fraud.’
Chargebacks happen in all industries, but are especially prevalent in online or e-commerce industries today. In fact, 60-90% of all online merchants routinely report friendly-fraud cases. On top of this, online merchants are expected to lose $28 billion dollars towards these friendly-fraudsters in 2020, according to Payment Fraud Outlook.
How many times have you heard the phrase, “The customer is always right” in business?
Sometimes, the customer is truly right and a chargeback is in order. We understand and appreciate the ability our system has to recover what’s been lost. But when statistics show that chargebacks are being routinely reported in 90% of businesses and money lost by U.S. merchants is in the billions and growing daily, something isn’t right. Unfortunately, many friendly-fraudsters have become knowledgeable about their power in the “customer is always right” mentality and choose to abuse that power.
We’ve found that most of the time, business owners we talk with don’t take the time to even fight most chargebacks, because they believe it’s a lose / lose situation. This is, however, not always the case. So if you’re fed up dealing with chargebacks, payment disputes, friendly-fraud, B.S. or whatever else you call it under your breath, we are here to help you learn how to win a chargeback.
What Is a Chargeback?
A chargeback, also referred to as a payment dispute, occurs when a cardholder questions a transaction and asks their card-issuing bank to reverse it. When a chargeback happens, the disputed funds are held from the business until the card issuer works things out and decides what to do. In essence, the customer has all the power to decide whether the business gets paid or not.
A chargeback usually occurs when there has been a dispute regarding a purchase. As a seller, if a customer decides to file a dispute against you, it will be in your hands to provide enough evidence for proving that the transaction was legitimate. If the issuing bank is not convinced by your evidence and concludes that the transaction was indeed fraudulent, the amount of the purchase will be taken from your account and given back to the customer. You will probably have to pay an additional fee of up to $100 or more, depending on the bank.
Whether the chargeback dispute was legitimate or not, having a high volume of chargebacks can be really damaging for your business. In fact, if chargebacks account for over 1% of your total transactions, you could be classified as a “high risk business” by payment processing companies which could lead to incurring high costs, fees and financial companies refusing to work with you.
How Do You Win a Chargeback?
Chargebacks happen and you’ll lose some. In 50% of successful cases of friendly-fraud, the same perpetrator will file again in the next 90 days. For this reason, merchants should do everything possible to reduce the risk of getting disputes in the first place by improving customer service, setting expectations upfront, and implementing a secure payment acceptance to ensure less fraudulent chargeback possibilities. Here’s how to win a chargeback:
Maintain accurate payment records
It is extremely important to maintain accurate and detailed records from the very beginning. Carefully documented transactions are crucial for winning a chargeback dispute – confirmation emails, automated invoices, and follow-up emails with the relevant tracking details once the purchase was processed are a must for maintaining a compelling record to present during the dispute. Upon delivery, always ask for signature – if the seller isn’t able to prove that the item was shipped, he is much less likely to win the dispute.
Other evidence that might be favorable for winning a dispute includes any communication (email, phone, etc.) between you and the customer concerning the transaction, the customer’s IP address and download time and date (if the service is digital), and proof that the customer lives or works at the delivery address, among others.
Set terms and conditions
This is particularly big for online or E-commerce businesses. Being able to dominate your terms and conditions is huge for minimizing chargebacks. Like we said previously, chargebacks are very common in online businesses.
Let’s say that you provide a service that charges a customer monthly and in exchange for your service or information and the customer buys a years worth of your business. Three months in, the customer decides they’ve reaped all the benefits already and want to not pay out the rest of their term. Having a contract in place that holds them accountable for such actions will help you win any friendly-fraud that comes your way.
Implement EMV Technology AKA “The Chip & Dip”
Have a brick and mortar business? If you’re accepting cards in person, a technology that will save you time over time is an EMV chip reading payment processor. This lessens your chance of chargebacks drastically because an EMV is a security layer that validates a credit or debit card.
“We see this happen all the time to business owners without this security technology. It seems excessively prevalent in nightclubs and bars. Business owners could literally have security camera footage proof of a customer paying and smiling as they do it. Without EMV compliance it can still land in the customer’s favor if they dispute that they didn’t make the charge.” -CEO of Paymentsmith, John Norton
What Do I Do Once a Chargeback Has Been Filed?
Check the reason behind it
When a new chargeback has been filed against you, the first thing you need to do is check the reason code. Reason codes provide you with valuable details on the reason why the customer decided to file a dispute in the first place. It is important to know that each card network (MasterCard, VISA, Discover, AMEX, etc.) has developed its own reason code system, which is why you need to check carefully the card that was used for the transaction.
A lot of times the reason code will not actually provide accurate details on the true motif behind a chargeback, but the dispute will be based on it. Therefore, as a merchant, you need to be familiar with the reason code in order to argue effectively against it.
Once the dispute has been filed, you will have a very limited time to gather your evidence and prepare a winning response. Take note of all applicable deadlines, format your documentation properly according to the requirements, study carefully the reason code, and prepare a chargeback rebuttal letter to accompany your evidence. It might be helpful to have a response template with all the general information ahead of time, and just fill in with specific-case evidence when a chargeback happens.
Chargebacks suck. They can brutally hurt a business and cause headache after headache for the business owner. That’s why learning how to win a chargeback is important, but even more important is keeping the friendly-fraud from happening in the first place. Taking these measures in your business to protect yourself is an easy way to save yourself a lot of time and money. Talk to your payment processing company to see if you’re doing everything you can to protect yourself!