Brands are becoming naive to the dynamic shift of the market. Chargebacks are one of the most influential elements of any business operation when it comes to profit standstill. Though these chargebacks are known to cater to high losses in the market, the companies may need to withhold them to ensure they stay competitive.
Here is a brief guide covering the crucial aspects of chargeback meaning and highlighting the potential areas of concern related to the concept.
What is a Chargeback: All you need to know
A Chargeback is a charge that is usually returned to a payment gateway after a customer dispute has occurred. Chargebacks can occur with both credit card and debit card payments, as well as other forms of payment infrastructure, so they’re crucial to all businesses. This means the chargeback could be a Paypal chargeback or bitcoin chargeback for example. It’s the chargeback fee that is one of the most growth limiting factors for businesses.
This has been one of the exhaustive and cost-consuming tasks that can ruin the figures of growth and opportunities for scale in the market. You may think it would be easier to not allow chargebacks to occur, however, there are specific reasons behind supporting chargebacks. Here is an example of this:
A customer has ordered a product from a specific brand, but when the product arrived it was damaged. Or, while charging the card, the merchant charged the card twice by mistake. In any of these scenarios, the businesses must release chargeback to the customer. Irrespective of how the transaction made (credit card, debit card or banking) the customer can ask the bank to refund the chargeback.
Reasons for Chargebacks: Know before it happens
There are multiple reasons for being acquainted with PayPal chargeback or debit card chargeback. So let us go through them one by one to understand them better.
Ranging from the arrival of defective products to fraudulent transactions, various reasons explain why chargebacks are common these days. As a business provider, if you can understand the core reasons why chargebacks are becoming prominent in your business operations, you might be able to control them and keep a check on your business revenue.
A credit card charged without the owner's consent is termed a fraudulent transaction. In the case of fraud occurring, there’s a chance that the customer will reach out for a refund. It also allows the customer to arise a dispute and ask for the chargeback.
This has become one of the market's most common causes of a chargeback. If you are willing to prevent the loss caused by these chargebacks, make sure you read the next section.
How to prevent it?
• Always use a secure point of sale instead of chip payments or contactless payments, such as Apple pay, Google pay
• Instead of swiping cards, encourage customers to use chip and pin. This will help prevent the first line of fraud, which is currently doing ground in the market
• Give your employees the relevant training and procedures to identify and resolve any fraud that occurs
• Always send an email with the receipt to the customer to ensure they’re aware of the transaction. Delivery and pricing issues:
Shipping, delivery, or pricing issues can also cause chargebacks- Imagine a cardholder has ordered an item but has not received the item. In such cases, the customer is entitled to opt for a chargeback. While shipping or during delivery, the item can be misplaced or not handled carefully and reaches customers damaged. This can upset the customer and encourage them to ask for a chargeback. It can be a tough choice for the brands as it leads to losses in terms of money, stock, and customer satisfaction rates.
In another scenario, there are possibilities that the card is being charged twice by mistake. Again, this can be a possible reason to further lead to a chargeback. When the cardholder never receives an ordered item or has been charged twice; it becomes a pure chargeback in both cases.
How to prevent it?
• You need to keep a regular track of every order that’s out for delivery.
• It’s essential to have access to your stock and have complete visibility of it’s management as well as payments that are processed.
• Get enrolled in a delivery service that asks for proof of delivery or e-signatures. This gives you a clear picture of what and when to expect in case of any conflict.
• Make sure you have good, competitive pricing.
Payment processing issues:
If credit or debit cards are not processed correctly this can lead to the business having to honor any charge backs that are requested.
How to prevent it?
• Make sure you choose a reliable system to handle credit and debit card payments
• It is essential to outline sales policies to ensure that the return, refund, and cancellation remain in line.
Sneak peek at how to avoid chargebacks
We have already discussed chargebacks and the reasons that make them a significant concern for all businesses, but there are ways that they can be avoided. Here are a few strategies that you should integrate into your existing system to prevent chargebacks.
1.Make sure you have a simple returns policy–At first, it might seem as though having a simple returns policy will promote returns, but in actual fact having a good returns policy makes customers more confident and comfortable buying your products and services. It can lead to both gaining new customers as well as improving the retention of your current customers.
2.Creating a customer retention policy – Customer retention policies are vital for businesses to adopt in order to promote business growth. By introducing customer surveys, tailoring customer communications, and having a good customer service experience you can dramatically improve a customer’s experience, and as a result, reduce the likelihood of chargebacks.
3.Make sure orders are delivered on time–One of the most effective ways of preventing chargebacks is to make sure that orders are delivered on time and products are not damaged during delivery. As mentioned above, when products are damaged during delivery or not delivered at all the customer is entitled to a chargeback. To achieve a delivery service that customers are happy with you should look for any delivery partner that can offer you timely fulfilment and proof of postage.
4.Maintain strong communication with your customers– Customer communications provide you with a channel to meet, understand and resolve your customer's queries simultaneously. It also allows proactive identification of the issues and resolving them before it becomes a possible cause of chargebacks. It is advised for businesses to stay confident and compatible with communication to build up a strong reputation with its customers. In addition, it helps decrease the ratio of chargebacks and gives the brand a new chance to explore and capture the economic growth opportunities as a whole.
Say no to frauds
If you are connected with digital payments or looking for payment reconciliations, keeping yourself updated with the latest information on fraud prevention is essential. You must be at hand to quickly identify any red flags during a customer transaction. Most established payment solutions have built in fraud detection and management features, but it’s essential to check for these when choosing to integrate with a given payment provider.
How are chargebacks processed?
The chargeback process generally varies dependent on the payment processor that’s in use, but it often takes 60–90 days to resolve. It can be initiated by either the merchant or the cardholder's issuing bank. If prompted by a merchant, the process is similar to a standard transaction; however, the funds are taken from a merchant's account and deposited with the cardholder's issuing bank.
If the issuing bank instead starts a chargeback, the chargeback is facilitated by communication on the issuing bank's processing network. After receiving the signal, the merchant bank authorizes the funds' transfer with the merchant's consent.
In some situations, the issuing bank may offer the cardholder a chargeback while also forwarding the claim to a collection department, such as with fraudulent charges. In this situation, a bank assumes the risk and deducts the chargeback from reserve funds while investigating and resolving the issue.
Chargeback transactions are often included with a fee by merchant acquiring banks. This fee tends to be higher than regular payment and refund processing fees, but the individual merchant account agreement will specify the fee. Fees are usually imposed with each transaction to support the processing network's expenses.
Chargebacks may also result in additional penalties and may differ from bank to bank too. This explains how damaging it could be to comply with chargebacks in your business. If you are looking for further assistance, feel free to jump for a call with our experts.
The major difference between chargebacks and refunds
Chargebacks and refunds often sound similar but they do in fact differ. For example, though both processes involve the return of funds, customers can usually request a refund from the merchant directly if their refund policy allows it. In some cases, such as the merchant stating a product is not damaged when the customer said it was, the retailer can actually refuse the refund request. If there continues to be a disagreement, this is when the consumer would request a chargeback.
When a customer files a chargeback, the bank (not the business) is contacted to reverse the payment. The chargeback process is more time-consuming and involves more steps than a refund. In addition, chargeback fees are much higher than those linked with a refund so this should be kept in mind.
Chargebacks should be a concern for businesses as they can inhibit growth. If you own a business, you need to check your business's operational costs when it comes to chargebacks and refunds. Chargebacks, if they remain uncontrolled, can create the vicious cycle of making it challenging for your business to scale and expand.