August 05, 2020

7 Ways to Prevent Chargebacks and Guarantee Payments

By Andres Suay of Trustly

If you accept credit card payments, chargebacks are inevitable. They are also time-consuming to dispute and too expensive to ignore, costing as much as $20 to $100 in fees per transaction. Receive too many chargeback complaints, and your business could be marked "high risk" and charged higher credit and debit card processing fees.

When it comes to chargebacks, the best defense is a good offense. Here's how to be proactive in order to reduce chargebacks and protect your bottom line.

What is a chargeback?

A chargeback is a form of customer protection that allows cardholders to dispute merchant charges. Because the system is built to support cardholders, it is imperative that merchants know how to reduce legitimate chargebacks and eliminate illegitimate ones.

When the card payments industry shifted to EMV credit cards and debit cards, the amount of card-present fraud plummeted. Some card issuers saw an 80% decrease in fraud claims. But an unintended consequence was that fraudsters shifted to less secure channels -- namely, online, where all transactions are card-not-present. Now, Javelin reports that card-not-present (CNP) fraud is 81% more likely than card-present (CP) fraud.

At a time when merchants were already struggling with CNP fraud and chargebacks, the COVID-19 shutdown demanded the rapid adoption of digital payment solutions. Businesses had to deal with obstacles that not only drained revenue but also created a poor customer experience, like supply chain disruption, delivery delays, and labor shortages.

Types of chargebacks

  • Criminal fraud: A stolen card is used to make a purchase.
  • Friendly fraud: A customer uses the chargeback process to get a refund, either mistakenly or intentionally.
  • Merchant error: A merchant makes a clerical error like a duplicate charge or incorrect billing amount.
Confused and stressed customers may be choosing chargebacks over the perceived hassle of contacting merchants. The good news is that you can mitigate financial strain on your business using our chargeback prevention tips below.

In this article, we will provide you actionable tips to fend off all the different types of chargebacks, in-store and online.

7 ways to prevent chargebacks at your business

Good communication, diligent recordkeeping, and fraud management will help you avoid potential chargebacks and win disputes if they occur.

1. Have a clear return and refund policy

You want customers to prefer the ease and speed of your return, exchange, or refund policy to the chargeback process. So, clearly explain the options a customers has if they are unsatisfied with your product or service, and how long they have to contact you.

Give customers multiple points of contact -- like phone, email, chat, and an online contact form -- so they can always reach you. Respond promptly and in a helpful manner. Display your policies in a prominent place, like the wall behind your store counter or within your online checkout process. A friendly, friction-free return policy is key to fewer chargebacks.

2. Accurately describe your product or service

Let your customers know exactly what to expect when they make a purchase. This is especially important for eCommerce transactions, where customers have to trust that your description is fair.

For a product, describe the quality, quantity, color, size, weight, usage, and expected delivery time. It is also helpful to provide images from multiple angles. For a service, clarify what is and is not included in the rate, as well as the service timeline. Detailed descriptions shield you from "not as described" chargebacks.

3. Make sure your billing descriptor is recognizable

Your billing descriptor is the name that customers see on their billing statement when they make a purchase at your business. It is also called the statement descriptor or merchant descriptor. If your buyers cannot recognize a charge due to a vague name, they are more likely to initiate a fraud chargeback.

For example, if your company's name is Green Living but your legal name, Elly Smith, shows up instead, more customers will reject your transaction. A good billing descriptor includes your doing-business-as name, website, and phone number.

4. Use fraud-prevention best practices

A recent study showed that "fraud" is the most common chargeback merchants receive, whether they accept Visa, Mastercard, American Express, or Discover. So, if you reduce fraudulent transactions, you reduce chargebacks. Here's how:

Card-not-present chargeback fraud prevention

  • Use the Address Verification System (AVS) to verify billing addresses.
  • Require card security codes such as CVC2 and CVV2 for every purchase.
  • Enable 3D Secure, like Mastercard SecureCode or Verified by Visa, on your website.
  • Maintain PCI compliance across all your point-of-sale (POS) systems.

Card-present chargeback fraud prevention tips

  • Examine the card for signs of tampering, like a damaged magnetic stripe or unfamiliar hologram.
  • Never accept expired cards. They will be auto-declined and could be stolen.
  • Avoid keyed-in transactions. They lack security and come with higher processing costs.

5. Follow credit card processing rules and guidelines

You may also receive chargebacks due to overcharging, duplicate transactions, or inaccurate billing amounts. To err is human, but you can limit the number of merchant errors by practicing protective card processing protocols.

First, do not estimate transaction amounts. Double- and triple-check the amount you are about to charge using print receipts or by referring to your payment gateway. If a card is declined, avoid trying to run the card multiple times. This could result in duplicate transactions and duplicate chargebacks later. Instead, ask for another method of payment and void any of the repeated authorization attempts.

6. Keep detailed records of every transaction

Should you receive a chargeback and decide to dispute it, every piece of evidence tips the scales in your favor. That means merchants need to safeguard their receipts, purchase orders, sales orders, invoices, shipping confirmations, contracts, and other transaction records. You should also hang onto supplier and customer communication records, such as emails and chat transcripts.

Here is another rule of thumb: If you only have one copy of something, you really have zero copies. If that copy is deleted, you do not have a backup. At the least, maintain one physical copy and one digital copy of each document. The statute of limitations for a chargeback depends on the bank and payment processor; however, it is common practice to keep business records for at least seven years.

7. Use a chargeback-free solution like Trustly's Online Banking Payments

Rather than navigating credit card chargebacks and approval rates, one alternative is to use a stress-free solution from Trustly. Our Online Banking Payment (OBP) solution costs less than card debit, has higher approval rates than card, and comes with a full guarantee -- no chargebacks to prevent, dispute, or pay for. That means you lower your payment acceptance costs and drive impact to both your top and bottom line, all while delivering a great experience to your customers.

Chat with one of our Trustly payment specialists to learn more about chargeback-free, guaranteed payment solutions for your business.