How to Estimate Your Chargeback Risk


While every chargeback is unique, there are nonetheless common factors connecting most of them. If your goal is to reduce your chargeback rate, the first step to take is to determine exactly what is driving your chargebacks. Once you have identified the common elements behind them, you can take action to improve your policies and procedures to limit further chargebacks from those sources.

While this may not enable you to eliminate chargebacks altogether, it can benefit your bottom line significantly to avoid the lost revenue and fees associated with most chargebacks. By enabling you to quickly take action to clamp down on the causes of the chargebacks, having a handle on your chargeback risk can be especially helpful if your chargeback rate starts to rise.

While there may be chargeback risk elements that are unique to your business, in many cases these risks apply to companies, or industries, across the board.

10 of the most common chargeback risk factors companies face are listed below:

1) Confusing Statement Descriptors

Credit card statements include merchant descriptors which let cardholders know who they have purchased goods and services from. If the descriptor for your store doesn’t match what customers see on their statements, you run the risk of ‘friendly fraud.’ This occurs when a customer files for a chargeback because they don’t recognize a transaction on their statement; they mistakenly believe your business has charged them for goods or services they never received.

To cut down on friendly fraud, ensure that your store’s merchant descriptor matches the actual name customers see when buying products from you. It also helps to include contact info such as a phone number or website URL with your descriptor, whenever possible.

2) Confusing Return and Other Policies

While return policies often lead the way in generating chargebacks if they are poorly written or overly complex, polices such as terms of service and customer agreement language can also lead to disputes which result in chargebacks.

The solution to these issues is to write your return policies in clear language that leaves no doubt in a customer’s mind what the terms are. By being upfront about these terms, you reduce the chance of disputes arising later. It is also advisable to offer a generous return policy where possible. While doing so may boost returns, generally speaking, a return is preferable to a chargeback.

3) Customer Service Issues

Your company’s customer service can tip the scales with regard to whether or not a chargeback is filed. Customers who find it difficult to reach your customer service department or who don’t get good service when they do are more likely to ask for a chargeback.

There is a simple solution to limit chargebacks from this source: provide excellent, easily available service. Whether this involves answering phone calls, emails, or on-premises staff, make sure your staff are available and well trained to provide your customers with the level of service they expect.

4) Delivery Problems

When products fail to arrive on time or are delivered to the wrong address by mistake, chargebacks may result. Additionally, if deliveries are undocumented it can lead to friendly fraud claims or fake return scams resulting in chargebacks.

To prevent these problems, track all deliveries and provide customers with accurate shipping ETA info. Another measure you can take is to require a signature to confirm transactions, giving you documentation you can use to dispute chargebacks based on alleged non-delivery.

5) Lack of Robust Customer Authentication Policies

When customers are purchasing your products, especially online, lax authentication policies can expose you to fraud and the chargebacks it often leads to. Rather than allowing purchases just with an account name and password, you can add an extra layer of fraud deterrence such as two-factor authentication. Another step you can take to reduce fraud is to require CVV and AVS codes for all transactions.

6) Poor or Misleading Product Description

If your product descriptions fail to provide enough detail about what your customers are buying, it can lead to chargebacks due to a “product not as described” code. To avoid this result, double check your product descriptions to ensure that they provide clear and accurate details (including photos where applicable) so that your customers can understand what they are buying.

7) Failure to Keep Compelling Evidence

Merchants hit with chargebacks have the right to contest them via the representment process. However, to successfully overturn a chargeback you will need to have records proving your case. If you don’t keep the relevant transaction, customer service, or other records in a place where you can easily access them, it will be difficult to win a chargeback reversal. To boost your chances of successfully disputing unwarranted chargebacks, make sure to keep your transaction, delivery tracking, and other relevant records organized and easily accessible.

8) Out-of-date Fraud Protection

The nature of online fraud threats can change rapidly as threat actors discover new methods of attack. If your anti-fraud software is out of date, newer scams and cyberattacks may be able to pierce your defenses.

To combat these threats, make sure your anti-fraud software and policies are up-to-date, so that both your cybersecurity solution and employees are prepared to handle such threats.

9) Lack of Digital Product Registration

Because digital goods exist only in the virtual world, it can be difficult to dispute chargebacks stemming from claims of failure to deliver or lack of functionality. One way to avoid such issues is to require customers to register their product or certify that they have received it before they can use it.

10) Unprepared Staff

Employee training is important in reducing chargeback risk not only in the area of customer service, but also to prevent fraud that can lead to chargebacks. Often hackers gain access to sensitive data which allows them to commit fraud via social engineering strategies that target employees.

To avoid this, staff training should focus on how to conduct transactions securely to prevent hackers from capturing passwords or other confidential information.

The Benefits of Chargeback Risk Analysis

While eliminating chargebacks entirely is not likely, understanding what is causing your chargebacks will help prevent them to the greatest extent possible. By identifying the most common chargeback causes, you can assess how to improve your defenses against them and implement changes along those lines. Doing so can not only save you money by limiting their frequency but can also keep your chargebacks from reaching levels where credit processing firms and credit card issuers are likely to add further penalties on your use of their services.

Whether you perform such an analysis yourself or bring in a chargeback management company to help out, determining your chargeback risk factors is an important part of proactive chargeback management.


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