On the 15 April 2018, Visa rolled out new chargeback rules. This is a good opportunity to focus our attention on chargebacks in general.
A chargeback is a powerful tool for end-customers and is ultimately a form of customer protection. This flexibility for end-customers might appear to be lost on merchants; however, satisfied customers are a huge benefit to a merchant. During the chargeback process, merchants have the chance to show the steps taken to protect and support the end-customer in order to resolve chargebacks amicably.
Merchants should focus on the possible reasons for chargebacks. There are 3 common types of chargebacks:
1) Merchant error
Unfortunately, merchants often generate a high number of chargebacks themselves. Internal errors like duplicated or incorrect billing amounts, poor customer service or faulty product fulfilment are typical reasons for end-customers to raise chargebacks.
2) Unauthorized card usage / criminal fraud
Stolen, lost or counterfeit credit cards are often used by fraudsters to make purchases without the knowledge or indeed the authorisation of the legitimate cardholder.
3) Friendly fraud/chargeback fraud
Instead of following the merchant’s procedure of requesting a refund, the cardholder may choose the unusual method of initiating a chargeback on a legitimate purchase.
Chargebacks can be costly for merchants and in the worst case can cause financial losses. In reality, end-customers will and should always have the possibility to initiate chargebacks. Thankfully, there are tools and techniques like the risk management service from DIMOCO that can be used to limit a merchant’s exposure to chargebacks. The DIMOCO risk management service can also help once a chargeback has been initiated by reviewing and working with merchants during the chargeback process. We have listed some useful tips and suggestions below to help merchants significantly decrease the amount of chargebacks initiated.
DIMOCO Payment Services recommends the following actions to reduce chargebacks.
- Choose a meaningful and relevant billing descriptor
A billing descriptor is simply the way your merchant or business name appears on the credit card statement of the end-customer. It should be easy to identify your company based on that information. Needless to say, if end-customers don’t recognize a transaction with your merchant or business name on their credit card statement, they will surely dispute this transaction without letting you know.
- Take advantage of 3D Secure
Verified by Visa and Mastercard SecureCode are additional methods of authentication during the payment process. 3D Secure (3DS) implies a shift in liability from the merchant to the issuer. As a merchant, you have got protection against chargebacks from the new fraud group defined by Visa.
- Manage recurring charges
Inform your end-customers about recurring charges or subscriptions in advance, make sure that this information is not only available in the terms and conditions section of your website but that it’s also visible throughout the website. In the case of free trials, let the end-customer know upfront when the charges will begin, with which frequency and for what amounts.
- Provide customer support
Providing contact information is essential, if end-customers are not able to get in contact with you there is a high risk of chargebacks. Try to offer different contact channels and clearly inform your customers how they can contact you.
- Accurate product and service description
Try to describe your products or services with as much relevant information as possible. Always include clear terms and conditions associated with the stated pricing. With this clarity you can reduce chargebacks with the reason codes ‘Not as described’ and ‘Service not provided’.
- Fair and clear refund policy
Offer your end-customers a fair, clear and flexible refund policy according to the European law for customer protection. The refund process should be as simple as possible. Communicate openly with end-customers and make sure that the communication and the processing of refunds happens within a reasonable timeframe. Refunds should be issued to the same credit card used for the initial transaction.
- Shipping & Tracking
Ensure there is a tracking and shipping mechanism in place. In cases of friendly fraud or when cardholders claim there was no delivery of a product, tracking and verification information is essential to process such chargebacks.
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