Business Practices to Minimize Chargebacks
January 30, 2024
In the ever-evolving landscape of electronic transactions, a proactive approach to chargeback prevention is vital for businesses today. The cost of chargebacks poses a significant business challenge; in addition to the financial loss of sales, a high volume of chargebacks may lead to increased processing fees or mandatory bank reserves. However, businesses can implement practices to help mitigate chargeback occurrences. This article will delve into the top 5 best business practices to minimize chargebacks.
Respond to Disputes
When a customer disputes a transaction, merchants typically receive an email notification and can respond accordingly. While the dispute is under review, the funds will be taken from the merchant’s bank account.
Often, simply replying to the dispute notification with clear information is enough to mitigate the chargeback. However, many merchants ignore or miss the notification, or their response needs to be better written. BlockChyp recognized this and embedded AI capabilities into our platform last year, a significant improvement in streamlining communication. Our AI-powered systems provide consistent and standardized messaging, ensuring clear information throughout the chargeback processes. This improves business efficiency and helps protect your bottom line.
Another pain point for merchants is the management of disputed transaction cases. When choosing a payments platform, look for a partner that offers a centralized dashboard including an overview of all disputed transactions. Having visibility into the status of cases allows for more efficient management and dispute resolution, saving time and effort.
Invest in POS
Of all the best practices in this article, investing in a secure point-of-sale system (POS) and payment gateway for processing transactions is the most important. Integration eliminates the need for multiple systems or platforms and reduces transaction friction.
Key benefits of an integrated POS and payments system:
- Offers customers a seamless payment experience within a single software platform
- Significantly reduces the likelihood of customers abandoning transactions
- Keeps customers within your ecosystem, which can build stronger loyalty and increase retention rates
- Mitigates potential fraud - more about this later in the article
- The terminal can be personalized with your company logo, customized surveys, videos, and even slideshows
- Centralized database for reporting
Keyed payments are card-not-present (CNP) transactions, with a greater risk of fraud and often higher processing fees. Integrating a payments platform requires a relatively low initial investment and can even be up and running in a few days. The key is choosing the proper payments model and a provider that can scale as your business grows. Diving into an embedded payments solution can be overwhelming, but it doesn’t have to be with the right partner.
Manage and Challenge Fraud
Even with the best preventative measures, there is always a risk of fraud when dealing with electronic transactions. Two types of fraud can result in disputes and lead to chargebacks: intentional and unintentional.
Intentional fraud is precisely that - a deliberate act such as a stolen identity or card, no cardholder authorization, or even a scenario where a customer receives goods or services and then disputes the charge not to pay.
Unintentional or “friendly fraud” can also occur with electronic transactions. One example is a customer wants to return the product, but can’t find return information, so they dispute the charge instead. A more common occurrence is an employee keys one amount manually into the terminal, then a different amount in the POS system. This example could be due to simple human error of the keyed entry, or could be an intentional act of theft by the employee.
The best way to combat any type of fraud is to enforce ID verification and signatures for non-EMV transactions. Be sure to also maintain Payment Card Industry (PCI) compliance to protect customer data, and challenge disputes by keeping good up-to-date business records. Lastly, consider integrating payments in your POS system, embedded payments eliminate the potential risk of miskeyed in transactions.
Keeping current on industry developments is essential for effective chargeback prevention. Stay informed about fraud prevention news and updates from all the major card issuers. For example, American Express is updating its Disputes/Chargeback Policy this year; beginning in April, AMEX will not exercise fraud chargebacks for all authorized Card-Not-Present (CNP) transactions when the CID doesn’t match the CID on file. To see the full announcement: (https://www.americanexpress.com/content/dam/amex/us/merchant/pdf/manage-disputes/Amex_QT_CID_Policy_Factsheet.pdf).
Be sure to adhere to all credit card guidelines to reduce the risk of chargebacks as well.
It may sound simple, but providing clear information is an easy best practice to implement today. Customers become frustrated, to the point of initiating a dispute, if they need help finding information about your business policies, including returns and exchanges. Make sure to:
- Display up-to-date, correct signage and purchase terms prominently to reduce customer confusion, opting for a return vs dispute
- Ensure the merchant name is displayed accurately on credit card statements so the customer recognizes where the charge was made
- For service work, have customers sign a service contract before the work is performed. Once the service is completed, have customers sign off that the work was performed
- Send out notices before recurring payments as a convenience, reminding them of the upcoming automated payment to help reduce chargebacks if their card declines.
- Check out BlockChyp’s Payment Link API for automatic payments: (https://docs.blockchyp.com/#send-payment-link)
Provide clear information in multiple areas of your business through signage, receipts, and websites, to eliminate customer confusion and frustration. Not only does this help reduce disputes, it also fosters customer loyalty and a promotes positive brand image.
In conclusion, encountering disputes leading to chargebacks is inevitable for most merchants. Implementing best practices can be a proactive strategy to minimize the impact of chargebacks on your bottom line. For more information about BlockChyp’s payment solution, contact firstname.lastname@example.org.
About BlockChyp®: With a focus on innovation and security, BlockChyp® has become a trusted partner for businesses seeking to streamline their payment system. Headquartered in Utah with U.S.-based developer support teams, BlockChyp has provided integrated payment solutions since 2019. With a robust platform and extensive industry expertise, offer customers a seamless, secure, and reliable checkout experience with BlockChyp.