'Chargeback' is an unpopular word in many companies – not just subscription businesses! However, if you run a business that relies on recurring revenue, you’re more exposed to the risk of chargebacks (and these can have a disastrous impact on your prospects: both leading to a reduction in revenue and drain on resource as you attempt to fix the issue).
In this blog, we’ll provide an introduction to the challenging world of chargebacks; what they are, why they’re important, and what you can do to combat them. Whilst you might never be able to eliminate chargebacks entirely, by implementing a few simple measures you’ll be able to hang on to more of your hard-earned cash.
What Are Chargebacks?
There are two kinds of chargebacks: the ‘friendly’ kind – and criminal fraud (i.e. the far-from-friendly kind). ‘Friendly’ chargebacks are usually due to forgetfulness, disorganisation, or buyer’s remorse. In these instances, the customer wants their money back, for whatever reason, and they’ve taken steps – through their bank – to retrieve it.
Criminal fraud, which we won’t be looking at in this particular blog, describes a concerted effort to retrieve money from your business in a malicious – and underhanded – way. These range from bigger, well-organised scams, to smaller actions (such as trying to get an item or service from a business for free).
When it comes to ‘friendly’ chargebacks, there are ways to try to persuade customers not to go down this particular route – and perhaps prevent them from requesting a refund. Here are a few key measures to implement:
Make Sure Your Name is Recognisable.
This might sound obvious, but it’s surprising how many companies don’t think about their credit card descriptor! This is the name that will appear on your customers’ bills – and it’s incredibly important. Put it this way: if a payment showed up on your bill and you didn’t recognise the name, wouldn’t you be suspicious? So suspicious, perhaps, that you'd feel concerned someone might have committed fraud on your account, meaning that you'd contact your bank to try to stop the payment/start the chargeback process?
The best way to avoid this is to use your brand name as a credit card descriptor – even if your legal business name is something different. You have 20 characters to use, so consider this when making your decision, too.
Be Available to Your Customers.
All businesses suffer difficulties from time to time: whether that’s a delivery glitch, a payment error, or a service slip-up. That’s understandable. What’s not understandable is putting obstacles in the way of customers who wish to resolve disputes or process returns/exchanges. If your customers find it hard to get in touch with you to discuss a problem or potential return, chances are they will decide to turn to the chargeback service instead – giving you no option to offer a solution and hang on to their business.
What about if they want to downgrade their subscription plan or cancel altogether? If this process seems complex, obscure, or difficult, they’ll opt for chargebacks – and, for subscription businesses this can be especially dangerous, as a customer could choose to do this every month (or week… or day [!], depending on your subscription options) for a prolonged period of time.
Pay Attention to Transaction Response Codes.
A ‘stolen card’ response code has several possible meanings, so it’s important to be proactive when you see one. Whilst it could mean that your customer’s card was stolen and the most recent transaction made without their knowledge, it could also mean that the customer has always been using this particular card fraudulently. Diligence is required – you don’t want to wait to see if a chargeback follows the transaction which prompted the code. Contact customers without delay if you spot a transaction code that looks suspicious: proactive contact at this stage could save you money (and time) in the end.
Be Upfront – and Detailed – About What Your Service Entails
Whilst customers shouldn’t really use the chargeback option immediately if a product or service falls short of their expectations, some do – so it’s important to be really transparent about what you’re offering. Clear details of the functionality and features offered (if you’re an SaaS business) and/or product description information; delivery information; images; FAQ pages; and extra resources (such as an information hub); as well as clearly signposted methods of contact (should they have any additional questions) are highly recommended. Be sure to audit this information regularly to make sure every new feature is included (and that obsolete functions and outdated information are removed).
Keen to learn more about reducing chargebacks and increasing revenue? Download our e-book ‘Combat Chargebacks in Your Subscription Business’ for an in-depth look at this challenging topic.