A chargeback rate that is higher than expected can compromise a merchant’s reputation and bring about considerable restrictions in addition to the direct financial cost of having to deal with repeated claims.
This article explores existing anti-chargeback strategies for a minimum chargeback probability, including advanced solutions such as VMPI. It also explains the exact meaning behind the word “chargeback” and how it can keep a business from flourishing.
What Is a Chargeback?
A chargeback occurs when a financial transaction to transfer money from a customer’s account to that of the merchant is reversed. For this to happen, the card owner needs to call his/her bank or card company and claim a chargeback. Chargebacks often result from misunderstandings but can also be an instrument of fraud commonly referred to as friendly fraud. Read below for detailed information on both scenarios.
Why Do Chargebacks Occur?
Generally, chargebacks can be divided into those requested in good faith and malicious ones. The former category includes cases where a person buys something from a store where the legal name is different from the sign or just forgets the fact and reports an unauthorized transaction on seeing the statement next to the company’s name. Similar scenarios include purchasing more pieces than desired by accident. Imperfect customer service, late delivery, and poor product descriptions can also cause chargeback claims.
Card users can employ the chargeback procedure to get an undue refund. This practice is commonly referred to as friendly fraud (also chargeback fraud) and consists in claiming identity theft where the purchase was knowingly made by the actual card owner in order to get a refund.
How Can Chargebacks Hurt Your Business?
Maintaining a zero chargeback rate is hardly realistic in many settings, especially for larger companies, but too many chargebacks per purchase is a bad sign. Here are the key ways in which it can undermine your effort to succeed:
- It is the merchant who bears all the costs associated with a chargeback claim regardless of the result.
- It is common practice to charge a higher payment processing fee if the merchant has a high cashback rate.
- In some cases, too many chargebacks can cause you to lose your merchant account.
What Services Can Reduce Chargebacks Significantly?
Luckily, there are numerous solutions on the market that can automate your fight-back effort in case of friendly fraud. These make use of transaction validation technology to eliminate malicious chargebacks. In addition, such services as Visa Merchant Purchase Inquiry, or VPMI, facilitate transparent customer-merchant discussions, thus becoming an intermediate link in the chain and reducing unnecessary chargebacks dramatically.
Next to Zero Chargeback Rate: Protect Your Business
Inevitable as they may seem at some stage, chargebacks are not uncontrollable. The key to maintaining a low chargeback rate is combining your effort as a merchant to avoid unrealistic customer expectations, such as by employing robust tracking solutions and being careful with product descriptions and preventing customer mistakes from becoming chargebacks with specialized services.