Offering your customers the payment option of using credit cards is a necessary part of doing business. Consumers today expect to pay for goods and services in numerous ways, with credit cards usually at the top of the list. Doing so is convenient for both the business and the customer. However, the occasional credit card chargeback is something a business must deal with and can be seen as an unfortunate side effect of offering this payment option.

What is a Credit Card Chargeback?

A credit card chargeback occurs when a customer asks their financial institution to return the funds charged for a particular transaction. The reasons for requesting a chargeback can vary but are typically the result of a customer being unhappy with a purchase. However, chargebacks can also occur as the result of a fraudulent scheme. Customers will usually attempt to receive a refund from the merchant first, but if that fails, the chargeback is a second option.

Requests for chargebacks aren’t always granted — the financial institution often engages in research, investigating the circumstances of the transaction and whether a valid reason for a chargeback exists. If the financial institution sides with the customer, the funds are forcibly returned to the customer’s account.

As a business, losing the funds for a particular transaction because of a chargeback is bad enough, but merchant account providers also charge your business high fees for a chargeback. If you experience too many chargebacks, your merchant services provider can raise your transaction costs or even eliminate you as a client. That’s why it’s important to learn how to reduce credit card chargebacks.

How to Reduce Credit Card Chargebacks: Tips and Best Practices

Chargebacks can occur because of many variables. Being prepared for all of them can help you reduce credit card chargebacks and prevent fraud. Consider the following ways to detect possible fraud and improve customer service efforts to reduce credit card chargebacks.

Follow the Proper Protocols

For starters, take care to always follow the rules and protocols of your merchant services provider and processing network. Each processor has its own specific protocols. For example, using AVS and CVV verification for card-not-present situations is an important step in fraud reduction for e-commerce businesses. 

Verifying customer identities, checking expiration dates and signatures on credit cards, getting signatures on receipts, and making sure all bill details are legible are also common-sense practices for reducing fraud and potential chargebacks.

Use a Recognizable Merchant Descriptor

When a customer checks their credit card transactions, they’ll see a name associated with each charge. For example, if a customer rented a car from Avis, they might see Avis Rental as the merchant descriptor on their statement. If you use a merchant descriptor that is not easily recognizable as your business, the customer might become confused as to where the transaction occurred. As a result, they might question it and initiate a chargeback

Using a merchant descriptor that a customer can easily associate with your business eliminates this problem. Including a phone number in the description also provides an opportunity for the customer to call you to clarify anything first before attempting a chargeback.

Keep Good Records

You may not always be able to stop a customer from initiating a chargeback with their financial institution, but if you keep good records of each transaction, you may be able to prove that a chargeback isn’t warranted. Maintain a good database of all transaction details — any small detail may help you prove your case that a purchase was legitimate and performed properly.

Practice Good Customer Service

Sometimes, one of the best ways to learn how to reduce credit card chargebacks is to simply provide excellent customer service. Consumers today base a lot of their shopping preferences and customer loyalty on which merchants provide the best customer service experiences. Seeking to resolve complaints directly with the consumer is a surefire way of reducing credit card chargebacks.

Take the time to listen to consumer complaints. Read customer reviews left on public sites and social media pages. Doing so can help you learn more about how customers perceive your business and its products or services. This enables you to make improvements to provide the best service possible.

If you can satisfy a customer complaint with a favorable resolution, there will be no need for the customer to initiate a chargeback. Even if you have to give the customer a refund, it will still cost less than a resulting chargeback and won’t likely damage your reputation with other customers or your merchant provider.

Use Fraud Prevention Tools

Many merchant providers and third-party apps offer fraud prevention features that can detect suspicious online orders. Using fraud prevention tools is highly recommended if you often deal with customers from other countries where e-commerce fraud is more prevalent.

Make Sure to Clearly Define Store Policies

Ensure customers can read your store policies pertaining to returns, exchanges, and refunds. This will eliminate confusion and provide further evidence to prove your case against a chargeback inquiry if necessary.

Use a Merchant Services Provider That Offers Chargeback Protection Services

Some merchant services providers offer increased protection for merchants. For example, NMA, a merchant advocacy group and merchant services provider, features a Chargeback Control Platform (CCP). This tool has direct access to incoming disputes because NMA hosts the merchant account. By intercepting inbound disputes before they become chargebacks, a business can effectively automate the refund process and handle alerts instantaneously. This helps save money and keeps your merchant account in good standing.

Help to Prevent Chargebacks

As a business, it is just a simple fact that occasionally you will need to deal with a chargeback. But by understanding why chargebacks occur, as well as taking the steps to learn how to reduce credit card chargebacks, you can significantly reduce the frequency that they happen. A large part of reducing chargebacks is simply to promote good customer service and to seek a satisfactory resolution to customer problems. Being aware of how fraudulent transactions and their subsequent chargebacks occur can also help to reduce them. To learn more about the Chargeback Control Platform and the many other features and services offered by NMA, contact us today. As a trusted partner and advocate in merchant services since 2004, we combine industry expertise with personalized service to create a positive impact for your business. NMA is A Merchant Account That Works For You™.