How to protect yourself from chargebacks

A chargeback can be described as a credit or debit card payment reversal occurring after a transaction is disputed by the issuing bank. The goal of the chargeback process as implemented by the card schemes such as Visa and Mastercard, is to protect cardholders against unauthorized transactions (fraud) or failure from the merchant to deliver the products or services.

The chargeback process is often abused by cardholders in an attempt to get their money back while the products or services have been delivered. A well-known example is “friendly fraud” where the cardholder wrongly claims she/he did not authorize the transaction. So, how to prevent chargeback fraud?

Merchant Account Providers are monitoring the chargeback-to-sales ratio and expect good performance from the merchants. If a merchant breaches the thresholds imposed by the Merchant Account Provider or the Card Schemes, its account will most likely be terminated and unsettled funds and collateral will be frozen for a few months. Thus, it’s important for merchants to take preventive measures aiming at protecting themselves from chargebacks (legit or not).

How to protect yourself from chargebacks? Find below a few steps on how to protect yourself from chargebacks:

1.      Capture the explicit consent of the cardholder

Merchants must ensure that the cardholders understand the terms of the contract and the value for their money, especially in case of recurring transactions with a free or paid trial period. Subscription terms are:

-         Initial charges (ifany)

-         Length of the trialperiod

-         Price

-         Frequency

For instance,“You will be billed USD 1.99 today for a 7-day trial. Once the trial ends,you will be billed USD 29.99 each month thereafter until you cancel the subscription”.

Merchants must also capture the explicit consent of the cardholders. For instance, by asking the cardholders to confirm they read the terms and conditions.

2.      Define an accurate and recognizable descriptor

Cardholders usually have a look at the credit card statements once a month. It happens on a regular basis that they do not remember a specific transaction. Merchants must define a descriptor which will appear on the cardholder’s statement very carefully. We advise merchants to disclose their brand name (unless it is not doable for privacy reasons) and a way to contact them (email address or phone number).  

3.      Have a clear refund policy

Cardholders are often allowed to request a refund instead of disputing a transaction. Merchants must proactively communicate with their customers and offer them easy ways to get a refund. Merchants must provide clear instructions on how to cancel the subscription and make sure the process of cancellation is easy and straightforward.

4.      Train your customer support team properly

Merchants must ensure that their customer support team is well trained, easily reachable, and able to identify when a refund is necessary to prevent chargebacks from happening. Customer service is key.

5.      Read chargeback letters and keep track of chargeback codes

Merchants rarely take the time to read chargeback letters. It’s a pity because those letters can contain gold nuggets as you learn more from unsatisfied customers than happy ones. Merchants must also keep track of the chargeback reason codes to identify pain points and define a remediation plan.

6.      Implement Ethoca and Verifi solutions

Merchants active is high-risk industries are more subject to getting disputes because of their business model or the nature of their business. It’s crucial to implement chargeback prevention tools offered by Ethoca (owned by Mastercard) and Verifi(owned by Visa). Find more information about chargeback prevention and management solutions here. eFlow Processing is an authorized reseller, feel free to contact us!

Don’t hesitate to reach out to eFlow Processing to discuss above steps and many more. Our goal is for every legitimate business to succeed. We will help you to learn what works and what doesn't but also how to prevent chargeback fraud or how to protect yourself from chargebacks.

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